Yesterday, Texas Instruments made history with one of the biggest moves in company history by acquiring rival National Semiconductor for $6.5 billion.
At $25 per share, the deal was made for a 77 percent premium of National Conductor's closing price of $14.07 from yesterday. That has boosted National Semiconductor's stock, which is at $24.06 per share in morning trading. The effect on Texas Instruments' stock was minimal; only going up 38 cents per share from $34.11 to $34.49.
TI's chairman, president and chief executive officer, Richard Templeton said the deal was all about growing the product portfolio. Combined, the two companies offer 42,000 analog products -- roughly a 17 percent share of the market. TI had revenue of $6 billion in 2010 and 14 percent of the market. National had $1.6 billion in revenue and three percent of the market.
Analyst reaction for the big deal was mixed. Some said it was a good move to help give TI a bigger share of the national semiconductor industry while expanding their portfolio.
TI has for long been focused on the wireless side of the business and its analog chips are primarily focused on the communications and computing markets. With the acquisition of National Semiconductor, TI would be able to boast a well-rounded portfolio, since the industrial market (mostly power management devices) accounts for almost half of National's revenue, analyst at Zach's Investment Research, Sejuti Banerjea, said in a note.
According to research firm IHS iSuppli, the company's new combined revenue and market share makes it the third largest semiconductor company behind Intel and Samsung. iSuppli says the deal boosted TI's standing in analog integrated circuits, voltage regulators and analog/comparator integrated circuits.
Another positive, according to Banerjea, is the potential of National Semiconductor, specifically the sales force, which is expected to grow by a factor of ten. The combined sales force is better equipped to carry out the function, so growth rates at National's business should accelerate. This would mean higher growth rates for the combined entity, possibly enabling TI to replace the baseband business, which will be completely phased out by the end of 2012, Banerjea said.
However, not everyone is completely sold on the combined Texas Instruments-National Semiconductor company. We say bigger, as total analog share goes up to 17 percent vs. 14 percent. We say bolder, as it does take courage to buy an asset that has been underperforming its peers in growth, for so many quarters, and TI is laying out growth as one of the main reasons. And finally, better? We are not sure it necessarily makes TI better, said Ambrish Srivastava, analyst at BMO Capital Markets, in a note to clients.
Srivastava says the companies have similar operating models, have similar return on capital investments and free cash flow. This does not make it an accretive addition in his eyes.
Another analyst, Deutsche Bank's Ross Seymore, said Texas Instruments may have paid too much. NSM's growth has lagged in the past and growth via such large acquisition will take years to materialize. While NSM's shareholders clearly benefit with the 78 percent premium, we wonder if TXN paid more than necessary. While this move will benefit Analog-sector valuations in the near-term, we do not expect accelerating consolidation to result, Seymore said in a note.
The boards of directors of both companies unanimously approved the transaction, but regulatory approvals will take several months and the deal is not likely to close before the end of the year.