Chipmaker Linear to be Bought for $14.8 Billion by Its Industry Peer Analog Devices

The past two years have seen a wave of consolidation weeping across the global semiconductor industry with many mergers and acquisitions through the world. This wave was again given a boost after the latest announcement by Analog Devices Inc that it would buy fellow chipmaker Linear Technology Corp for about $14.8 billion.

Increase its share in the fragmented market for analog chips and boost its profitability are the stated aims that Analog hopes to gain by buying Linear. Analog chips are key in the processing of signals such as sound, light and temperature and then helping them to be converted into digital signals. For all of the smart phones and devices that are connected to the internet, such chips are central.

As recently as July 8, SoftBank Group Corp announced a $32 billion acquisition decision of British chip designer ARM Holdings and this deal comes hot on the heels of SoftBank’s deal.

Since many companies are aggressively buying up assets to gain scale, the process and trend of consolidation in the semiconductor industry will continue, said Analog’s Chief Executive Vincent Roche in an interview.

“Growth has been hard to come by in the industry over the past several years. Those who have the balance sheets are using them,” Roche said.

An “industry-leading innovation engine” that generates strong revenue growth would be created by buying Linear and the deal is “is about much more than that”, Roche added referring to growth in the industry and using of balance sheets by companies.

Due to its high margins and engineering talent, Linear was viewed as one of the most attractive sales targets in semiconductor industry. According to analysts, Liner had been for ling identified as a coveted target for Analog or Texas Instruments, one of the rivals of Analog.

$46.00 per share in cash and 0.2321 a share for Linear would be offered by Analog, the company announced. Noting a 24 percent premium to Linear’s closing share price on Monday, the offer made by Analog thus valued Linear roughly at $60 a share.

The deal values the combined business at about $30 billion, the companies said.

The last significant acquisition by Analog was made in 2014 when it bought Hittite Microwave Corp for about $2 billion. The company was founded by two MIT graduates in 1965.

Noting the highest price since 2001, Linear’s stock closed up nearly 29 percent at $62.49 while Analog’s shares rose to a 52-week high. The resultant company that would be created from the acquisition would have combined revenues of $5 billion. The adjusted earnings per share and free cash flow of Analog is expected to be immediately added upon by the deal.

While JP Morgan Chase & Co and Bank of America provided financing to Analog Devices, Credit Suisse Group AG advised the company. While Jones Day advised Linear, Wachtell, Lipton, Rosen & Katz and Wilmer Cutler Pickering Hale and Dorr were the legal advisers for Analog.

(Adapted from Reuters)

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