[ACCESSWIRE]
LONDON, UK / ACCESSWIRE / November 22, 2016 / Active Wall St. blog coverage looks at the headline from MACOM Technology Solutions Holdings Inc. (NASDAQ: MTSI) ("MACOM") as the company announced on November 21, 2016, its decision to acquire Applied Micro Circuits Corporation (NASDAQ: AMCC) ("AMCC"). The acquisition will be done using a mix of cash and stock, and the transaction is valued at approximately $770 million. Register with us now for your free membership and blog access at: http://www.activewallst.com/register/.
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Lowell, Massachusetts based MACOM is a leading player in the semiconductor industry and manufactures a wide range of analog RF, microwave, millimeterwave, and photonic semiconductor products for the communications infrastructure, aerospace and defence sectors. Lowell, Massachusetts based Applied Micro Circuits Corp. designs and sells optical transport and storage ICs, network processors based on IBM's Power Architecture and ARM-based server processor. The acquisition will help MACOM to expand its data centre connectivity business.
Sharing his thoughts on the deal, John Croteau, President and CEO of MACOM said:
"MACOM will now be able to provide all the requisite semiconductor content for optical networks - analog, photonic and PHY - from the switch to fiber for long haul, metro, access, backhaul and Data Center. AppliedMicro's 100G to 400G single-lambda PAM4 platform should perfectly complement MACOM's leadership in analog and photonic components for Data Centers."
Paramesh Gopi, President and CEO of AMCC, added:
"This transaction will create an industry powerhouse with the scale, deep customer relationships, innovative technology, and enabling products that will help deliver explosive growth in Enterprise and Cloud Data Centers."
Key highlights of the deal
AMCC's shareholders will be paid a total of $8.86 per share, of which $3.25 will be paid in cash and 0.1089 in share of MACOM. The offer price is at a 15.4% premium of AMCC share's closing price of $7.25 on November 18, 2016. AMCC will generate approximately $770 million through this deal which includes $82 million in cash and short-term investments as on September 30, 2016. MACOM will use the available cash in hand to finance the cash portion of the deal. The deal is expected to be finalized in the first quarter of 2017 subject to fulfilment of all regulatory conditions and approvals. Once the deal is final, AMCC's shareholders will own approximately 15% equity of the merged entity.
Under the agreement, MACOM has indicated that it will divest AMCC's Compute business within 100 days of the finalization of the deal. MACOM feels that this business does not align with its long-term strategy and focus. AMCC had also been exploring options to divest the Compute business. Applied Micro is in the process of bringing its third-generation X-Gene server processor to market. This has created a buzz and attracted several potential buyers and investors for the Commute business. However, until the divestment happens, MACOM will continue to support AMCC's Commute clients.
MACOM expects the deal to add to its adjusted earnings per share and adjusted gross margin for the fiscal year ending on September 30, 2017, excluding AMCC's Compute business. MACOM also expects to save tax to the tune of $600 million due to carry forward of operating losses.
Business synergies
The MACOM/ AMCC deal is yet another consolidation taking place in the semiconductor industry.
AMCC's product portfolio of OTN framers, MACsec Ethernet networking components and the industry's leading single-lambda PAM4 platform will complement and expand MACOM's range of product offerings.
MACOM will be able to make significant strides in the high-growth, high-margin Data Center market. MACOM will especially benefit from AMCC's top-tier Data Center clientele using customized PAM4 solutions based on FinFET technology.
The divestment of the Compute business will net MACOM a substantial payout and help it save costs.
Spate of Mergers and Acquisitions in the Semiconductor Industry
Rising costs of manufacturing chips, high R & D costs, fast evolving technology, and slowing sales have led to a spate of merger and acquisition in the semiconductor industry:
In December 2015, chip giant Intel Corp. acquired programmable chip manufacturer Altera for $16.7 billion.
On January 19, 2016, microcontroller, mixed-signal, analog and flash-IP solutions provider Microchip Technology Inc. acquired Atmel Corp. for $3.56 billion.
In July 2016, Japanese internet conglomerate SoftBank acquired British semiconductor designer ARM Holdings for $32 billion. And, during the same month, Analog Devices Inc. acquired Linear Technology Corp. for about $14.8 billion to gain access to the chips market that control power in devices.
In September 2016, ON Semiconductor acquired Fairchild Semiconductor for $2.4 billion.
Qualcomm Inc. acquired NXP Semiconductors on October 27, 2016 for $38 billion in a bid to diversify into the Automotive, Internet of Things, and Security and Networking side of the business.
On November 02, 2016, chip maker Broadcom acquired Brocade Communication for $5.9 billion creating the biggest communications semiconductor company.
Siemens AG acquired software firm Mentor Graphics for $4.5 Billion on November 15, 2016.
M&A activities are not likely to stop soon and experts are anticipating more announcements from the industry.
Stock Performance
On Monday, the stock closed the trading session at $45.01, declining 4.13% from its previous closing price of $46.95. A total volume of 1.64 million shares have exchanged hands, which was higher than the 3-month average volume of 422.90 thousand shares. MACOM Technology Solutions' stock price rallied 17.80% in the last month, 6.28% in the past three months, and 25.10% in the previous six months. Furthermore, on a year to date basis, the stock gained 10.08%. The stock has a market capital of $2.40 billion.
The news of the acquisition pushed Applied Micro Circuits' share price higher as it finished yesterday's trading session at $8.10, surging 11.72%. The level was quite close to MACOM's offer price. A total volume of 10.08 million shares exchanged hands, which was higher than the 3 months average volume of 427.16 thousand shares. The stock has surged 36.59% and 23.10% in the last month and past six months, respectively. Furthermore, since the start of the year, shares of the company have gained 27.16%.
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