Microchip Technology Inc. on Thursday (March 1) announced plans to acquire Microsemi Corp., a fellow chipmaker, for $8.35 billion.
Acquiring Microsemi Corp., the largest commercial supplier of aerospace and military semiconductor equipment in the U.S. means a significant expansion in Microchip's presents in various chip markets. The expansion will include aerospace & defense, computing, and communication markets that makeup about 80% of Microsemi's sales yearly according to EETimes analysis. The deal is expected to improve Microchip's serviceable market to $50 billion from its current $18 billion. Estimating from both company's past revenues in the last quarter of 2017, they should record about $5.8 billion annual sales combined.
“We are delighted to welcome Microsemi to become part of the Microchip team and look forward to closing the transaction and working together to realize the benefits of a combined team pursuing a unified strategy." Steve Sanghi, Chairman and CEO of Microchip said in a press release. "Microchip continues to view accretive acquisitions as a key strategy to deliver incremental growth and stockholder value."
Microsemi's share price closed at $64.30 on Wednesday but Microchip's press release offers 68.78 per share, payable in cash. The deal is expected to close in June 2018 or a bit earlier after its approval by the shareholders of Microsemi according to Microchip, and both companies placed share transactions on hold during the announcement. The acquisition is the latest merging agreement that's reshaping the semiconductor industry lately, though it doesn't involve a lot of money like similar deals lingering or recently closed in the industry.
Qualcomm is still involved in two merger deals that are yet to be closed. Chinese antitrust regulators are yet to approve NXP Semiconductor's $44 billion acquisition by Qualcomm. And Broadcom's mammoth bid to acquire Qualcomm, which is still considered as the biggest acquisition proposal in the semiconductor industry is still lingering and would be evaluated using proxy vote by Qualcomm's shareholders in a meeting next week.
According to Sanghi, Microchip is expecting a savings of $300 million by the third year after the acquisition is completed. And the company is not planning to stop any business division of Microsemi after closing the deal. Based on EETimes calculations, Microchip would boost its revenue generated from communication supplies to about 20 percent from its current 5 percent, aerospace & defense is expected to grow to 16 percent from 2 percent, while they experience extra 10 percent in computing supplies.
J.P. Morgan is Microchip's financial adviser and has committed $5.6 billion for the deal, while Microsemi is having Qatalyst Partners as its financial adviser.
Microsemi, a giant chipmaker based in Aliso Viejo, Southern California was founded in February 1959. The company's significant growth began in the 1980s through acquisitions, and between 1986 and 1996, Microsemi acquired about 15 companies, including Linfinity, the first Integrated Circuit Company that merged with Microsemi in 1996 and Ireland-based Ennis Co. Clare, now Microsemi's European headquarters. The company specializes more in making chips that can withstand harsh environments such as in defense-related devices and aircraft.