Daily Management Review

Continuing Trend of M&As in Semiconductor Industry, ON Semiconductor Acquires Fairchild in $2.4 billion deal


11/18/2015




Continuing Trend of M&As in Semiconductor Industry, ON Semiconductor Acquires Fairchild in $2.4 billion deal
In the latest deal in the rapidly consolidating semiconductor industry, ON Semiconductor Corp said it would buy Fairchild Semiconductor International Inc  in a $2.4 billion deal.
 
The news brought down the share price of Fairchild on Wednesday evening which was trading at $19.33 before the bell which was slightly below the offer price of $20 per share.
 
ON Semiconductor makes chips to improve power efficiency in products ranging from home appliances to automobiles and the deal would help the company to diversify its semiconductor business.
 
Chief Executive Keith Jackson said that there was little product and revenue overlap between the two companies.
 
Jackson added that the revenue overlap is expected to be less than $100 million even as the combined company is expected to have annual revenue of $5 billion.
 
In the face of slowing demand from the industrial, appliance and consumer markets in recent quarters, Fairchild, one of the pioneers of the semiconductor industry, has been struggling to boost growth.
 
With the growing popularity and demand of Internet-connected devices, there has been considerable movement in the semiconductor industry  with a wave of deals this year as companies seek to cut costs, meet demand for cheaper chips and diversify portfolios.
 
 Two major deals that were announced earlier this year included the acquisition of Altera Corp by Intel Corp in June in a deal worth $16.7 billion  which is expected to close within six to nine months. Anotehr significant M&A happened with Avago Technologies Ltd expected to close it $37 billion buyout of Broadcom Corp by the end of the first quarter of 2016.
 
Fairchild was valued at a 41% premium to where the stock was trading before news reports last month at a price tag of $20 a share. This suggests that Fairchild was seeking a buyer, said analysts.
 
According to Thomson Reuters data, till October this year, more than $80 billion in semiconductor M&A has been racked up so far.
 
Jackson said it was "inevitable" that there would be further consolidation in the industry.
 
Cash from the combined company's balance sheet and $2.4 billion of new debt would be used to fund the deal, said sources in ON Semiconductor. The deal is expected to close toward the end of the second quarter of 2016.
 
ON Semiconductor's Chief Financial Officer Bernard Gutmann said that the new company will have about $500 million in liquidity to run the business.
 
The company said that the deal would boost ON’s presence in the industrial, automotive and smartphone markets that will immediately add to ON’s earnings.
 
Deutsche Bank and BofA Merrill Lynch are financial advisers to ON Semiconductor, while Morrison & Foerster are the legal adviser.
 
Goldman Sachs is financial adviser to Fairchild and Wachtell, Lipton, Rosen & Katz is the legal adviser.
 
(Source:www.reuters.com & www.wsj.com) 






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