Passave being bought by PMC-Sierra for $300 million

Israeli firm Passave is being bought by U.S. company PMC-Sierra for around $300 million. Investors had invested approximately $11 million invested in the company, a return to investors of more than 25 times the amount they had put into the company.

Passave, which makes semiconductors for fiberoptic internet connectivity, was founded in 2001 by CEO Victor Vaisleib and company president Ariel Maislos. Both of them are veterans of a secret IDF intelligence unit.

The chairman of the company's board of directors is Menashe Ezra, who is also the managing director of the BRM capital fund, which owns 18.6 percent of the company. Vaisleib and Maislos own 7.9 percent each, with Eurofund and Walden each holding a further 18.6 percent.

Passave develops semiconductors for fiber-to-the-home (FTTH) internet connections with a bandwidth of 1GB per second. The firm's products transmit voice, video and data over communications networks. Most of its sales are to Japan, where its market share is around 90 percent.

The company ended 2004 with profits of $8.1 million, on revenues of $21.1 million. In the last nine months of 2005 its revenues rose by 169 percent to $30.7 million, compared to the same period of 2004.

Negotiations between the two companies had been going on for the past few months, and Passave vacillated between a share offering and the sale. In August, the company began preparations for a share offering on Wall Street. While it had been estimated that the company would offer its shares on Nasdaq based on a company value of $300-400 million, the prospectus which they filed with the U.S. Securities and Exchange Commission specified a value of $185-210 million. The company wanted to raise $70-80 million, but three months later announced the share offering was to be postponed because of a lawsuit by a large U.S. customer, UTStarcom.

The lawsuit claimed faults had been found in Passave's chips, which had been installed in a fiberoptic network in Japanese households.

Passave never withdrew its prospectus from the SEC, and preparations for the share issue went ahead. However, in recent months the market for mergers has been flourishing, while share offerings have been stagnant.

Wall Street investment bankers said recently that shareholders in technology companies prefer mergers to share offerings because the exit is quicker.

Published by TheMarker- - on April 5, 2006

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