According to media sources, Intel’s INTC acquisition of Altera ALTR has come to a halt due to disagreement between the parties on the sale price.
Reportedly, Intel plans to offer approximately $50 per share, a premium of 44% to Altera's price of $34.58 as on Mar 26, just a day before the takeover news was first reported. However, Altera did not approve of it.
According to Doug Freedman, an analyst from RBC Capital Markets, Altera’s apparent refusal might lead investors to ask for some valid explanation. Altera's shares plunged 7% to $38.67 before closing a notch higher at $43.33, reflecting shareholders’ anxiety. On the other hand, Intel shares declined 0.22% to $31.24.
Late last month, Intel was apparently in advanced talks to buy Altera, a leading field programmable gate array (FPGA) maker. FPGAs designed by Altera are used in telecom and computer networks, cars and other products where they are suitably reconfigured to take workloads off the main computer system to increase the speed.
Intel, on the other hand, designs and prepares the computing logic that processes the information in the system. Therefore, Intel’s chips work faster when coupled with FPGAs —same as what Chipzilla has been doing for some time now with its Xeon line.
Altera already has an exclusive 14-nm foundry agreement with Intel. The buyout could bring the companies closer both in terms of chip design and manufacturing process.
Had the deal materialized, it would have been Intel's largest acquisition, topping the McAfee buyout completed in 2010 in a cash transaction worth $6.8 billion.
More Deals to Follow Despite the Impasse
Consolidation touched a three-year high in 2014 in the semiconductor sector as deals totaling $19.5 billion were closed. In terms of volume, deals in 2015 have already outpaced last year’s M&As. Some analysts believe that at least 10% of semiconductor companies listed in the U.S. will be acquired this year.
Economies of scale, resulting from the need to reduce costs and improve capacity utilization, are a major consideration driving these deals. The other driving force is the desire to boost sales to stay competitive in an industry that is likely to gain maturity soon.
In fact, most chip majors share Intel’s woes. The decline in PC, which constitutes the major source of demand for these chipmakers, has hastened the move toward consolidation.
Some analysts opine that companies as large as Broadcom Corp. BRCM, with a market value of $26 billion, could draw attention from potential buyers. However, more likely targets are the smaller companies, especially those that are close to Altera in size.
To Conclude
The stage is set for further consolidation in the semiconductor space even though the Altera-Intel deal was shelved due to disagreement on price. However, it is premature to predict whether the sector will emerge stronger from this trend in 2015 itself.
Currently, Intel carries a Zacks Rank #4 (Sell). Another stock that is performing well at the current level includes Linear Technology Corporation LLTC carrying a Zacks Rank #2 (Buy).
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