According to media reports, Intel Corporation INTC has resumed negotiations to acquire Altera ALTR and could announce the agreement by next week. Last month, the deal came to a halt due to disagreement between the parties regarding the sale price.
Reportedly, Intel offered approximately $54 per share, a premium of 15% to Altera's price of $46.97 as on Mar 28, 2015. Following the news that the deal might materialize soon, Altera shares gained 4% to $48.85 and Intel shares rose 1.32% to $34.46.
In March, 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 and are suitably reconfigured to take the workload off the main computer system to increase the speed.
Intel, on the other hand, designs and prepares the computing logic that processes the information on 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 would bring the companies closer in terms of chip design as well as manufacturing process. Intel will also be able to further diversify its business beyond personal computers and expand into cloud computing.
If the deal materializes, it would be Intel's largest acquisition to-date, surpassing the McAfee buyout completed in 2010 in a cash transaction worth $6.8 billion.
More Deals to Follow
M&As touched a three-year high in 2014 in the semiconductor sector as deals worth a total of $19.5 billion were closed. In terms of volume, deals so far in 2015 have already outpaced last year’s M&As.
Economies of scale, resulting from the need to reduce costs and improve capacity utilization, are a major consideration driving these deals. Another factor 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.
Recently, Singapore-based Avago Technologies Ltd AVGO agreed to buy Broadcom BRCM for $37 billion in cash and stock, marking the largest acquisition ever in the technology world. In March, the Netherlands-based NXP Semiconductor agreed to buy chipmaker Freescale for $11.8 billion.
Some analysts opine that more likely targets are the smaller companies, especially those that are close to Altera’s size.
To Conclude
The stage is set for further consolidation in the semiconductor space. However, it is premature to predict whether the sector will emerge stronger from this trend in 2015 itself. In the short term, other potential targets could witness the uptrend witnessed by Altera recently.
Currently, Intel carries a Zacks Rank #3 (Hold).
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