Texas Instruments (NYSE:TXN) had been on something of a roll for a while, gaining share in markets like amplifiers, power management and so on, and getting slots in products like the Apple (Nasdaq:AAPL) iPad. On top of that, deals in the analog chip space are relatively rare as chip architectures tend to be proprietary and there is a lot of market overlap.
So, of course it stands to reason that TI would do the unexpected and step up with a $6.5 billion bid for rival analog player National Semiconductor (NYSE:NSM).
The Terms of the Deal
Under the deal announced late on Monday, TI will pay National Semiconductor shareholders $25 in cash for each of their shares. That represents a 78% premium and a generous valuation. How generous? TI's bid values NSM at a P/E of 20-times and an EV/sales of 4.2 - well ahead of the blended averages of leading players like Analog Devices (NYSE:ADI), Linear Technology (Nasdaq:LLTC) and Maxim (Nasdaq:MXIM). (For more, see Mergers And Acquisitions: Valuation Matters.)
What TI Is Getting
What TI Is Getting
Why would TI do this deal? With National Semiconductor in the fold, Texas Instruments will have a compelling power management business, particularly as TI has generally done best in the computer and handset markets, while NSM has been stronger in the industrial markets. This is not an encouraging development then for the likes of Maxim or ON Semiconductor (Nasdaq:ONNN). That said, customers will often tap at least two suppliers (one as primary and one as back-up), and there could be some incremental business to be had among those customers who already use TI and NSM and will need a new back-up.
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