Chipmaker Microsemi Corp(MSCC.O) has dared takeover target Zarlink Semiconductor (ZL.TO) to show it can get a bid higher than the C$550 million ($561 million) it has offered, saying it is willing to walk away from the bid.

Microsemi, which has bought nine other companies since 2009, has offered C$3.35 a share for Ottawa-based Zarlink, and the bid expires September 22. Zarlink, a Canadian specialty chipmaker, says it has held talks with 15 potential suitors and that they will likely yield a higher offer.

If they have a party that's fully funded, they should really name the baby ... who is it? Microsemi Chief Executive Jim Peterson told Reuters in an interview on Friday.

At this point, come 22 September, in these market conditions I might take my fully funded money and go to what I call Plan B or Plan C and quite frankly, we'll find out where it trades on the 23rd.

Microsemi has been courting Zarlink since the beginning of the year, and at one point offered to pay as much as C$3.55 a share for the Ottawa-based designer of computer chips for communications and medical applications.

It made its interest in Zarlink public with a takeover proposal in July, and followed that with an official hostile bid on August 17.

Zarlink shares have consistently traded above the Microsemi bid, suggesting the market thinks a higher bid is likely.

At C$3.35, this is a good company, and I'm here to tell you that it is not worth where it's trading at today, Peterson said.

Here's my open offer. I'll sign an NDA (non-disclosure agreement). I certainly wouldn't sign a standstill. I'll look under the hood, but the C$3.55 number that I put my name on, I have to back off of that right now.

Analysts point at industry giants such as Intel (INTC.O), Texas Instruments (TXN.N) and Qualcomm (QCOM.O) as potential suitors for Zarlink's award-winning medical applications technology, building wireless chips for medical devices such as pacemakers and defibrillators.

Zarlink shares were trading at C$3.65 a share on Friday afternoon, reversing earlier gains that took the stock as high as C$3.71.

Zarlink has not identified any of its potential suitors, saying only that parties are interested in the company as a whole or in its parts.

It said its directors and officers intend to reject the Microsemi offer and recommended shareholders to do the same.

($1=$0.98 Canadian)