Intel to buy Altera for $16.7 billion in its biggest deal ever

02 Jun, 2015 11:15 am

SAN FRANCISCO – Intel Corp (INTC.O) agreed to buy Altera Corp (ALTR.O) for $16.7 billion as the world’s biggest chipmaker seeks to make up for slowing demand from the PC industry by expanding its line-up of higher-margin chips used in data centres.

By combining with Altera, Intel will be able to bundle its processing chips with the smaller company’s programmable chips, which are used, among other things, to speed up Web-searches.

Intel said on Monday it would offer $54 per share for San Jose, California-based Altera, a 10.5 percent premium to Altera’s close on Friday.

Altera’s shares were changing hands at $51.78, well below the offer price, in afternoon trading.

That suggested that some investors felt the deal could face regulatory hurdles, but analysts said there was virtually no overlap of products between the companies.

Intel’s shares were down about 1.7 percent at $33.86.

The deal valued Altera at about 9 times forward revenue, according to Thomson Reuters data.

“It seems very high to me,” Stifel, Nicolaus & Co analyst Kevin Cassidy told Reuters. “The last one I remember that was close was Broadcom buying NetLogic at 8 times forward revenues, and that didn’t turn out very well for Broadcom.”

The deal price is unchanged from Intel’s unsolicited offer that sources had said Altera rejected in April.

The integration of Altera’s chips with Intel’s will create a new class of products giving customers a significant improvement in performance, lower costs and a lot more flexibility, Intel Chief Financial Officer Stacy Smith told Reuters. “That’s the piece that’s pretty exciting about it,” he said.

Intel looked at other targets, but Altera was the best bet to create value for the shareholders, Smith said.

The transaction is the third big one in the highly fragmented chip industry this year. In the industry’s biggest-ever deal, Avago Technologies Ltd (AVGO.O) agreed last week to buy Broadcom Corp (BRCM.O) for $37 billion.

Altera’s programmable chips will allow Intel to increase the computational capability of its Xeon server chips, which could be under attack post the Avago-Broadcom merger, Summit Research analyst Srinivasan Sundararajan told Reuters.

NXP Semiconductors NV (NXPI.O) set off the latest round of deals in March when it agreed to buy Freescale Semiconductor Ltd (FSL.N) for $12 billion. – Reuters

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