MANILA, Philippines ? The holding company MUSX Corp. has agreed to sell out of the semiconductor manufacturing business, which it now deems "too high risk and too capital intensive," to the same people managing this erstwhile core business.

In a disclosure to the Philippine Stock Exchange, MUSX said its board had approved ? subject to ratification by shareholders ? the management buyout of the semiconductor business. The total price consideration was set at P54 million, including a P19.7 million partial offset for certain obligations to the employee pension trust and P24.3 million in royalty payments for certain products.

The management buyout is led by MUSX chair, president and chief executive officer Michael Burton, 66, who was has been at the helm of the business since its inception in 1992. During the board discussions on the buyout, Burton did not participate in the deliberations and voting, the disclosure said.

"The board is currently studying other less risky and lower capital-intensive business opportunities at this time such as real estate, environment, mining, and energy that can translate into near-term MUSX profits and enhance its share value. The board expects to be able to announce the commencement of the first of these business projects in the near future," the disclosure statement said.

Under the agreement, the Burton-led management team will purchase all MUSX share interests in the local semiconductor unit MUSIC Semiconductors Philippines, Inc. and its subsidiary as well foreign subsidiaries MUSIC Semiconductors Inc, Musem Electronic N.V. and Protelcon, Inc. However, the intellectual property for the development of its latest chip design FLEXHARRP shall be assigned back to MUSX pending payment for it in the MBO terms.

The holding firm MUSX has committed to maintain said FLEXHARRP product line "in good order" and reserve it for transfer to Burton and/or his assignee, if and when the CEO obtains a third-party investor to bring this product line into commercial production.

In its 2009 annual report, MUSX communicated its intention to veer away from the semiconductor business.

"The semiconductor business is cyclical, holds myriad technical risks, and follows closely the ups and downs of the global gross domestic product [GDP]. When the business is in a growth cycle, and the risks have been mitigated, the financial results can be spectacular. However, these periods, are interspersed with other periods which may not be quite so spectacular. Furthermore, it has proven difficult for investors to understand this business, which has a business model different [from] any other semiconductor company in the Philippines," the company said.

Burton and all employees joining the management buyout have resigned and their resignations were accepted, the disclosure said. Burton immediately stepped down as chair and CEO of MUSX but shall remain as president in a temporary hold-over capacity "for purposes of the transition between his term and the term of the new management of MUSX and for him to effect his obligations under the MBO [management buyout]," the disclosure said.

To fully extinguish all liabilities of MUSX to its incorporated Employee Pension Trust, MUSX shall issue primary shares amounting to P9.3 million priced on the basis of a 90-day moving average of closing prices of MUSX shares traded on the PSE but in no case be less than the par value of these shares.

To secure the obligations under the buyout, the company will place a lien on a certain real property owned by Burton to the extent of the amount owed or in the alternative, a lien on the shares of the MUSX subsidiaries transferred under the buy-out scheme.

Burton has been involved in the semiconductor business since 1964 when he was first employed by Texas Instruments where he held various positions in Houston, Curacao, Singapore, Germany and France. In 1985, Burton founded Triad Semiconductors, which was focused on the development, marketing and selling of VGA graphics integrated circuits for the personal computer market. MUSIC NV of the Netherlands acquired Triad in 1989, which initially owned the company when the latter was incorporated in the Philippines.

MUSX booked last year a modest net income after tax of P5.6 million or 14 percent of sales. Of this, the semiconductor net profit after tax was P17.9 million (45 percent of sales) while the non-semiconductor business incurred a net loss of P12.3 million.