martinwolf Transaction Analysis

Financial Information

• Transaction Size: $17.8 billion
• Enterprise Value: $15.4 billion
• EV/LTM Revenue: 8.1x
• EV/LTM EBITDA: 26.6x

Transaction Facts

• Intel Corp. (Nasdaq:INTC) announced today that it agreed to acquire fellow chip maker Altera Corp (Nasdaq:ALTR), concluding a long process that was first reported by The Wall Street Journal on March 27.
• The purchase price of $54 a share in cash is 56 percent higher than Altera’s price before rumors of the deal were first reported. Today, Intel’s share price is down more than 1.5 percent while Altera is up more than 5 percent. While it’s unusual for the buyer’s share price to drop on news of an acquisition, Intel’s share price is up from when a potential deal was first reported.
• Intel announced that it would fund the acquisition through cash and debt, and that it expects to close the deal within six to nine months. The transaction is expected to add to Intel’s earnings in the first year after the close.

Consolidation Reigns in Slowing Semiconductor Space

• Hot on Avago’s Heels: Today’s announcement follows the largest semiconductor acquisition on record: Avago Technologies (Nasdaq:AVGO) announced Thursday that it had reached a deal to acquire Broadcom Corp. (Nasdaq:BRCM) for $37 billion. That deal itself followed NXP Semiconductors (Nasdaq:NXPI) announcing a $12 billion acquisition of Freescale Semiconductor (NYSE:FSL) in March. Deal activity in the space has not been limited to this year: Thomson Reuters data reported worldwide semiconductor M&A for 2014 totaling $31 billion, the most since 2011.
• A Changing Customer:  While Intel is famous for its computer chips, the company is looking to boost profitability by expanding into specialized markets and protecting its current positions. In its announcement, Intel highlighted this deal’s potential to help it offer new capabilities in data centers and other server products, as well as create opportunities in “Internet of Things” devices.
• On Again, Off Again: Talks between Intel and Altera reportedly fell through earlier this year due to a price disagreement – leading analysts to comment that a failed merger would put additional pressure on Altera’s board. But with Intel’s largest customers looking for more flexible programmable chips of the type Altera creates, it’s clear that a pairing remained desirable for both parties.