Why Shares of Sigma Designs Slumped Today

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What happened

Shares of system-on-chip solutions provider Sigma Designs (NASDAQ: SIGM) slumped on Wednesday after the company announced changes to its agreement to sell itself to Silicon Labs (NASDAQ: SLAB). Instead of acquiring the entire company, Silicon Labs will now buy only the Z-Wave business. Following the close of the transaction, Sigma Designs will liquidate its assets and distribute cash to shareholders. Shares of Sigma Designs were down about 15% at noon EST, while shares of Silicon Labs were down 1.5%.

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So what

On Dec. 7, Sigma Designs agreed to be acquired by Silicon Labs for $282 million in cash. Due to initial closing conditions not being satisfied, the companies have agreed to a new arrangement. Sigma Designs will sell its Z-Wave business to Silicon Labs for $240 million and initiate a liquidation plan following the close of that transaction.

Sigma Designs expects to make an initial distribution to shareholders following the asset sale, which is expected to close within the next few months. After the company completes the subsequent liquidation process, it expects to make a final distribution to shareholders after all outstanding claims are paid. The company provided no details on the size or timing of that final distribution.

"We conducted an extensive and thorough review process over several months, and are pleased to have achieved what we believe is a positive outcome for our shareholders," said Sigma Designs CEO Thinh Tran.

Now what

How much shareholders will ultimately receive as part of this plan is unclear at this point. The company called the planned initial distribution "substantial," but no numbers were given.

Sigma Designs is actively exploring ways to increase the available cash for distribution, including divestments of businesses like home connectivity and mobile IoT. The company is in active conversations about the divestment of some of its assets.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool recommends Silicon Laboratories. The Motley Fool has a disclosure policy.