TI to acquire National Semiconductor 6.5Bn ( ref vs Qualcomm to Buy Atheros for About $3.2 Bn)
Complementary portfolios are foundation for growth
Conference call on TI and National websites at 4:30 p.m. CDT / 2:30 p.m. PDT today
www.ti.com/ir and www.national.com/invest
Conference call on TI and National websites at 4:30 p.m. CDT / 2:30 p.m. PDT today
www.ti.com/ir and www.national.com/invest
"This acquisition is about strength and growth," said Rich Templeton , TI's chairman, president and chief executive officer. "National has an excellent development team, and its products combined with our own can offer customers an analog portfolio of unmatched depth and breadth. In recent years, National's management team has done an outstanding job of improving margins and streamlining expenses, which upon close will increase TI's profitability and earnings per share, excluding transaction costs. Our ability to accelerate National's growth with our much larger sales force is the foundation of our belief that we can produce strong returns on our investment. The combined sales team will be 10 times larger than National's is today, and the portfolio will be exposed to more customers in more markets."
"Our two companies complement each other very well," said Don Macleod , National's chief executive officer. "TI has much greater scale in the marketplace, with its larger portfolio of products and its large global sales force. This provides a platform to enhance National's strong and highly profitable analog capability, power management in particular, leading to meaningful growth."
Each company has unique strengths. Among them are the breadth of TI's 30,000 analog products, extensive customer reach, and industry-leading manufacturing including the world's first 300-millimeter analog factory. National brings a portfolio of 12,000 analog products, a strong position with customers in the industrial power market, and excellent customer design tools. Upon close of the transaction, National becomes part of TI's analog segment, and sales of analog semiconductors will represent almost 50 percent of TI's revenue.
The combined company also will benefit from National's manufacturing operations, located in Maine , Scotland and Malaysia , which TI will continue to operate. Each site has additional capacity to increase production. National's headquarters will remain in Santa Clara, California .
Under terms of the agreement, National stockholders will receive $25 in cash for each share of National common stock they hold at the time of closing. TI expects to fund the transaction with a combination of existing cash balances and debt. The acquisition is subject to customary closing conditions, including review by U.S. and international regulators and approval by National's shareholders. The transaction is expected to close in six to nine months.
The market for analog semiconductors was $42 billion in 2010. TI is the market leader with 2010 analog revenue of $6.0 billion , or 14 percent of the market. National's revenue in calendar year 2010 was about $1.6 billion , or 3 percent of the market.
For more information, see www.ti.com/acquire or www.national.com.
德儀斥資65億美元購併國家半導體 意欲擴展類比晶片業務10:14
Analysis: TI-National deal a smart use of cash
Bolaji Ojo
4/4/2011 8:27 PM EDT
Texas Instruments is not known for making huge acquisitions. Until Monday (April 4), the last time it rocked the market with anything close to or above $1 billion was in 2000 when it acquired Burr-Brown for an eye-popping $7.6 billion. Following that transaction, TI settled into organic growth while gobbling up the occasional bite-size transactions meant to fill product lines on a steady basis.
Rich Templeton, TI president, chairman and CEO, is often unapologetic about his often-stated belief that large acquisitions in the semiconductor industry usually don't make financial sense, often getting the parties stuck in a quagmire.
So why is TI making its biggest acquisition in more than a decade by offering tobuy analog rival National Semiconductor for $6.5 billion in cash? After all, the transaction will increase TI's market leverage, and likely attract some regulatory scrutiny, which the company should withstand easily. However, the deal will result in some integration distractions for Dallas-based TI, distractions that rivals will try to exploit in order to negate some of the gains both companies are expecting from the deal.
While some industry observers and financial analysts may question TI's decision to pay $6.5 billion for a struggling rival with less than $1.5 billion in annual sales (for fiscal 2010 sales were $1.42 billion), TI can point to several advantages from the transaction. These include the opportunity to boost National’s revenue by deploying its highly motivated sales force, add about 12, 000 new products to its portfolio along with seasoned, scarce analog engineers and reach new markets. The result will be increased leverage in the analog market.
Furthermore, TI is wisely deploying cash at a time of low returns from investment markets. Cash on most companies' balance sheets today is generating meager returns whether from U.S. Treasury, corporate or municipal bonds along with overseas investments. Keeping more than $3 billion on the balance sheet might make sense for companies with limited ability to generate additional cash flow or that need it for capital expenditures, but this is not a problem at TI. In addition, the chip maker will be tapping the investment market for financing at a time of low interest rates. The result is likely to be rapid, strong returns on the investment.
It's a move few analysts quarreled with during a conference call with TI executives to discuss the transaction. Indeed, many analysts offered congratulations to Templeton although a few had tough questions about timing, the additional leverage TI would be assuming and the expected returns from the investment.
As with most acquisitions, the announcement of the deal will temporarily hurt National as OEM customers wait to see which products might be phased out and which would be retained. Customers will also need to be reassured of regulatory approval, which would involve as many as 10 different international regulatory agencies, according to TI officials. During the expected six- to nine-month review period, the fate of National's products will be in limbo, and customers may move on rival suppliers. Winning these customers back may be difficult.
Despite the potential hurdles, the acquisition is certain to tip the overall competitive environment heavily in TI's favor while helping boost its analog IC market share past the current 14 percent. TI, in fact, could see its market share expand above the combined 17 percent the two companies currently hold as it leverages an extensive sales network to drive sales of National products.
The 85 percent premium TI is offering for National also indicates the level of confidence TI execs have in the transaction, and their ability to rapidly boost flagging growth rate for National's products. During the conference call, they made it clear that the opportunity to generate higher sales for National products was a key factor. TI, which said it introduces 500 analog parts per year, will automatically gain 12,000 new products in a market where building portfolios "takes a long time," according to Templeton.
"National's growth potential has yet to be met," Templeton said. "We can significantly expand National's sales force and our combined sales force will be 10 times larger than what National currently has."
TI will be taking on debt to finance the transaction, but the company is not expected to have any problems securing the financing. It closed its December 2010 quarter with zero long-term debt, and more than $3 billion in cash and short-term investments. TI also had about $500 million in long-term investments and generates a steady stream of cash from operating activities each quarter. National Semiconductor had about $1 billion in cash and short-term investments at the end of its fiscal quarter ended Feb. 27. This was cancelled out by about the same amount in long-term debt.
The higher debt TI will assume as a result of this deal is not a concern to the investment community, however. They will likely be more focused over the next nine months on how quickly TI can get regulatory approval and how soon it can complete the integration of National Semiconductor personnel to realize the promised benefits of the acquisition.
--Bolaji Ojo is editor in chief of EBN.com
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