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Re:
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Zoran Corporation
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Preliminary Consent Statement on Schedule 14A filed on December 6, 2010
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Filed by Ramius Value and Opportunity Master Fund Ltd, Cowen Overseas Investment LP, Ramius Advisors, LLC, Ramius Value and Opportunity Advisors LLC, Ramius LLC, Cowen Group, Inc., RCG Holdings LLC, C4S & Co., L.L.C., Peter A. Cohen, Morgan B. Stark, Thomas W. Strauss, Jeffrey M. Solomon, Jon S. Castor, Dale Fuller, Thomas Lacey, Jeffrey McCreary, Jeffrey C. Smith and Edward Terino
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File No. 000-27246
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1.
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Please fill in the blanks in the consent statement.
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2.
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Avoid issuing statements in your consent statement that directly or indirectly impugn the character, integrity or personal reputation or make charges of illegal, improper or immoral conduct without factual foundation. Disclose the factual foundation for such assertions or delete the statements. In this regard, note that the factual foundation for such assertions must be reasonable. Refer to Rule 14a-9. Please provide us supplementally the factual foundation for your disclosure that you do not believe “the current Board has served the best interests of the Company’s stockholders” (cover letter) and that your proposed actions “are necessary to protect and serve the best interests of all Zoran stockholders.” (page 5; emphasis added).
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As shown in the table attached hereto as Exhibit A, Zoran’s shares have dramatically underperformed the Russell 2000, NASDAQ and Peer Group over the past one-, three- and five- year periods. Over the past five years alone, Zoran’s shares have lost more than half their value while its Peer Group and indices have each registered material gains.
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Revenues at Zoran have fallen by approximately $131 million, or 26%, since 2007. Over that same period Zoran’s Research and Development expenses have remained flat and Sales, General, and Administration expenses have declined by a mere $16 million.
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Zoran’s Gross Profit has declined by $77.1 million and the Company has reduced expenses by only $16.7 million, which has resulted in a decline in operating profits of over $60 million since 2007.
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Zoran forecasts a further decline in revenue for next quarter by approximately $34 million to $39 million, or 35% to 40%, respectively.
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As shown in the table attached hereto as Exhibit B, following Zoran’s recent acquisition of Microtune, Zoran has $286 million of cash and no debt. This implies a $59 million enterprise value based on Zoran’s stock price of $6.88 per share as of November 30, 2010, which means that as of the end of November, Zoran was trading below tangible book value of $6.90 per share.
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3.
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Each statement or assertion of opinion or belief must be clearly characterized as such, and a reasonable factual basis must exist for each such opinion or belief. Support for opinions or beliefs should be self-evident, disclosed in the consent statement or provided to the staff on a supplemental basis. We note the following examples of statements in the consent statement that must be supported:
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“. . . we do not have confidence in the ability of the current Board to improve the Company’s operating performance and enhance stockholder value” (cover letter);
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“. . . we also fear that the Company’s intrinsic value may continue to sharply deteriorate under the continued stewardship of the current Board” (cover letter);
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“. . . we believe significant opportunities exist to improve operating performance and enhance stockholder value” (cover letter);
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your disclosure in the bullet points on pages 5-6; and,
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your disclosure in the last paragraph on page 9.
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As shown in the table attached hereto as Exhibit A, Zoran’s shares have dramatically underperformed the Russell 2000, NASDAQ and Peer Group over the past one-, three- and five- year periods. Over the past five years alone, Zoran’s shares have lost more than half their value while its Peer Group and indices have each registered material gains.
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Revenues at Zoran have fallen by approximately $131 million, or 26%, since 2007. Over that same period Zoran’s Research and Development expenses have remained flat and Sales, General, and Administration expenses have declined by a mere $16 million.
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Zoran’s Gross Profit has declined by $77.1 million and the Company has reduced expenses by only $16.7 million, which has resulted in a decline in operating profits of over $60 million since 2007.
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Zoran forecasts a further decline in revenue for next quarter by approximately $34 million to $39 million, or 35% to 40%, respectively.
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As shown in the table attached hereto as Exhibit B, following Zoran’s recent acquisition of Microtune Zoran has $286 million of cash and no debt. This implies a $59 million enterprise value based on Zoran’s stock price of $6.88 per share as of November 30, 2010, which means that as of the end of November, Zoran was trading below tangible book value of $6.90 per share.
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Revenues at Zoran have fallen by approximately $131 million, or 26%, since 2007. Over that same period Zoran’s Research and Development expenses have remained flat and Sales, General, and Administration expenses have declined by a mere $16 million.
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Zoran’s Gross Profit has declined by $77.1 million and the Company has reduced expenses by only $16.7 million, which has resulted in a decline in operating profits of over $60 million since 2007.
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Zoran forecasts a further decline in revenue for next quarter by approximately $34 million to $39 million, or 35% to 40%, respectively.
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Concerns with Zoran’s Poor Stock Performance
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As shown in the table attached hereto as Exhibit A, Zoran’s shares have dramatically underperformed the Russell 2000, NASDAQ and Peer Group over almost any measurement period. Over the past five years alone, Zoran’s shares have lost more than half their value while its Peer Group and indices have each registered material gains.
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The DTV and DVD businesses are highly commoditized, low gross margin businesses with significant competition from low cost Asian suppliers. The competitive nature of the DTV business specifically requires a disproportionately large amount of R&D spending as a percentage of revenue.
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Zoran has generated combined gross margins of only 37% in the DTV and DVD, which is dramatically lower than the R&D and SG&A spending as a percentage of revenue in the aggregate.
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In the last twelve months, Zoran realized only $54.6 million in Gross Profit from the DTV and DVD businesses while spending $111 million in R&D and SG&A. This upside down cost structure has resulted in Zoran losing approximately $56 million of operating income between the DTV and DVD businesses in the twelve months ended September 30, 2010.
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Management’s revenue forecast suggests further losses in the fourth quarter
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As shown in the table attached hereto as Exhibit B, following Zoran’s recent acquisition of Microtune Zoran has $286 million of cash and no debt. This implies a $59 million enterprise value based on Zoran’s stock price of $6.88 per share as of November 30, 2010, which means that as of the end of November, Zoran was trading below tangible book value of $6.90 per share.
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The Company’s DTV and DVD businesses are highly commoditized, low gross margin businesses with significant competition from low cost Asian suppliers. The competitive nature of the DTV business specifically requires a disproportionately large amount of R&D spending as a percentage of revenue.
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Zoran has generated total gross margins of only 37% in the DTV and DVD businesses, which is dramatically lower than the 76% of combined R&D and SG&A spending as a percentage of revenue.
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In the last twelve months, Zoran realized only $54.6 million in Gross Profit from the DTV and DVD businesses while spending $111 million in R&D and SG&A. This upside down cost structure has resulted in Zoran losing approximately $56 million of operating income between the DTV and DVD businesses in the twelve months ended September 30, 2010.
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Based on management’s revenue forecast for the fourth quarter, it appears that this loss may actually get worse.
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4.
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Please describe the plan you have to “restore credibility and improve performance at Zoran.”
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5.
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You indicate that proxies may be solicited by mail, facsimile, telephone, telegraph, Internet, in person and by advertisements. Please be advised that all written soliciting materials, including any scripts to be used in soliciting proxies by personal interview, or telephone must be filed under the cover of Schedule 14A. Refer to Rule 14a-6(b) and (c). Please supplementally confirm your understanding.
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6.
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Please remove doubt from your disclosure as to who “may be deemed” a beneficial owner of the shares held by the Ramius Group by stating definitively who is or who is not a beneficial owner of those shares.
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7.
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We note that all members of the Ramius Group disclaim beneficial ownership of the shares held of record by other members of the Ramius Group except to the extent of their pecuniary interest therein. Please note that beneficial ownership is not determined based on pecuniary interest. Refer to Rule 13d-3(a). Please revise.
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8.
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Please refer to the fourth paragraph of page 23. It appears that the members of the Ramius Group have already entered into the referenced agreement. Please update your disclosure.
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Very truly yours,
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/s/ Steve Wolosky, Esq.
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Steve Wolosky, Esq.
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cc:
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Jeffrey C. Smith
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Owen Littman
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Stock performance
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1 year
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3 year
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5 year
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Zoran Corporation
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(24.7%)
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(68.5%)
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(59.3%)
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Russell 2000 Index
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25.4%
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(5.3%)
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7.3%
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NASDAQ Index
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16.5%
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(6.1%)
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11.9%
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Peer Group
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49.6%
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(1.9%)
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26.6%
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* Stock performance as of November 30, 2010
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* Peer Group sourced from Zoran 2010 proxy and includes ATHR, BRCM, CNXT, DLB, DSPG, EFII, MRVL, MSCC, NEWP, NVDA„ OVTI, SIGM, SIMG, TRID and TQNT
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Capitalization and Balance Sheet Metrics
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$(in millions, except per share values) | |||
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Current Stock Price
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$ | 6.88 | ||
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Shares Outstanding
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50.20 | |||
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Market Capitalization
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$ | 345.60 | ||
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Cash as of 9/30/2010
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$ | 371.10 | ||
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Less Purchased Value of Microtune
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84.70 | |||
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Current Pro Forma Cash Balance
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$ | 286.40 | ||
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Current Pro Forma Enterprise Value
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$ | 59.10 | ||
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Purchased Value of Microtune
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84.70 | |||
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Enterprise Value of Legacy Zoran Business
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$ | (25.50 | ) | |
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Pro Forma Tangible Book Value
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346.70 | |||
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Pro Forma Tangible Book Value / Share
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$ | 6.90 | ||
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Pro Forma Cash / Share
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$ | 5.70 | ||
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Current Stock Price
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$ | 6.88 | ||
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* Per 10Q filed November 5, 2010, market data as of November 30, 2010.
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