San Francisco- Analog Devices Inc. (NASDAQ:ADI) will buy the chipmaker and rival company Linear Technology Corp. (NASDAQ:LLTC) for 14.8 billion in a cash and stock deal, said the company on Tuesday. The decision is yet to be made by Linear’s shareholders, but the buyout is expected to close in 2017.
With this transaction, Analog is trying to boost its earnings and increase its shares and their value in the vast market for analog chips. If the 2 companies close the deal, the merger would be valued at about $30 billion. Both companies are involved in the tech industry and are part of the power management chips, data converters, and amplifiers market. All those elements are highly demanded because now, almost all electronic products need them to be built.
For smartphones and other devices with internet access, analog chips are vital. Chips process sound, light, and temperature signals that then are transformed by the chip into digital signals.
Analog Devices said that they would offer $46.00 per share in cash and 0.2321 a share for each Linear share, which represents 24 percent premium to Linear’s closing share price on Monday, according to Reuters.
Business Insider reports that after the deal was made public by Bloomberg, Linear Technology’s shares froze for the trade about 29 percent at $62 per share, and Analog’s shares were up 4 percent.
On Tuesday, the stocks related to the semiconductor space increased: Semtech shares went up 3 percent; NSP Semiconductor, 4 percent; Microsemi, 4 percent. The highest boost was experienced by Max Integrated, 5 percent; and the closest competitor to the Analog-Linear merger, Texas Instruments, that saw a grow of its shares over 9 percent.
Analog was founded in 1965 by 2 MIT graduates, and a part of Texas Instruments, the chip-maker company is also competing with Maxim Integrated Products Inc. (MXIM).
Analog Devices expects to create a team with strong representations from both companies.
Linear products, its high margins, and their engineer force complement Analog’s needs. For Analog, Linear is one of the most attractive sales targets in semiconductors. And Vincent Roche, Analog Chief Executive stated that the combination of the company’s’ products would make it possible to solve their customer’s’ challenges.
Bob Swanson, Linear’s co-founder, and executive chairman said in a statement that the company’s board of directors decided that Analog’s deal would add value and potential to the shareholders.
Swanson stated that complementing Analog and Linear’s areas of technology would reinforce Linear’s leadership across the analog and power semiconductor markets that would allow the growth of the shareholder value, reported EE Times.
After the buyout, Roche will continue as Chief Executive and David Zinsner, who is Analog’s chief financial officer, will continue to serve as CFO of the combined company, Analog Devices Inc. said.
— Linear Technology (@LinearTech) July 21, 2016
Analog-Linear merger is not the first big deal that has happened in the technology industry
The semiconductor market saw in 2015 over $100 billion in acquisitions including Avago Technologies’ deal to buy Broadcom Corp., which closed at $37 billion; Intel Corp.’s $ 16.7 takeover of Altera Corp; NXP Semiconductors NV’s purchase of Freescale Semiconductor Inc.; and a few others.
Dell recently bought EMC for $67 billion and more recently, ASML, a Dutch chipmaker company, acquired Hermes Microvision for $3.1 billion.
What is happening in the tech world is that new technologies are taking the scenario, and the way data is capture and store are changing. Those changes provoke companies to buy or sell their products to other businesses to stay in the market, because by themselves, the companies are currently struggling. Thus, they seek among their competitors the products they need to compete better in the market.
For example, Dell acquired EMC to move to the data storage market. Dell is a company that relied on personal computers to store data and now, having merged with EMC, Dell is moving its information to the cloud.
Companies are looking to complement with others to avoid decline, and due to constant changes in the market, the takeovers are going to continue.
Source: Business Insider