UPDATE 4-Power chip maker ON Semi to buy Fairchild to head off competition

18 Nov 2015 | Author: | No comments yet »

Fairchild Jumps 9%, ON Semi Falls in Latest Chip Deal; Analog Chips Rise.

REUTERS – ON Semiconductor Corp is to buy Fairchild Semiconductor International Inc for US$2.4 billion to bolster its business of making power-management chips, the latest in a rapidly consolidating industry. Semiconductor M&A globally has topped US$80 billion so far this year, according to Thomson Reuters data, as companies seek to cut costs, meet demand for cheaper chips and diversify portfolios. Our plan is to bring together two companies with complementary product lines to offer customers the full spectrum of high, medium and low voltage products. ON Semiconductor has agreed to acquire fellow chip company Fairchild Semiconductor for about $2.4 billion in cash, the latest deal in the consolidating semiconductor space.

While ON Semi rival STMicroelectronics has said it has no M&A plans for now, Infineon’s acquisition of International Rectifier in January was the most recent deal that posed a direct competitive threat for ON Semi. The immediate EPS accretion and potential to significantly augment ON Semiconductor’s free cash flow, make the Fairchild acquisition an excellent opportunity for ON Semiconductor stockholders. Analysts said ON Semi’s move for Fairchild was most likely to keep it out of the hands of a competitor, including China’s Tsinghua Unigroup Ltd, which aims to be the world’s No.3 chipmaker. I would note that shares of analog chip makers are rising on this deal: Analog Devices (ADI) shares are up 14 cents at $59.44; Maxim Integrated Products (MXIM) is up 31 cents, or 0.8%, at $39; and Texas Instruments (TXN) is up 4 cents at $57.11.

Target on Wednesday reported a better-than-expected increase in third-quarter sales as the retailer’s merchandise changes are paying off, helping to ease concerns over spending heading into the key holiday shopping season. The combined company will have annual revenue of US$5 billion, with revenue overlap of less than US$100 million and little product overlap, said Keith Jackson, chief executive of ON Semi, which had revenue of US$3.16 billion in 2014. ConAgra Foods Inc., which has responded to mounting challenges in the food sector with aggressive restructuring this year, unveiled Wednesday plans to split into two independent public companies.

Fairchild, an industry pioneer, has been struggling to boost revenue growth recently due to slowing demand – a story not too different from that of other chipmakers. Recent deals have spanned various sectors: Intel Corp moved for Altera Corp to boost its data center business, while Avago targeted Broadcom Corp to expand its wireless chip business. China’s Tsinghua has spent more than US$9.4 billion in two years, including on buying a stake in U.S. data storage company Western Digital Corp, and it plans to invest US$47 billion over the next five years.

CA Technologies agreed to repurchase 22 million of its shares from its largest stockholder, Careal Holding AG, in a deal valued at roughly $590 million, effectively completing the company’s previous $1 billion stock buyback authorization. Hertz Global Holdings Inc. said it is targeting $1.17 billion in additional revenue for the three-year period ending in 2020, including $485 million for extras such as navigation system or child seats. Depomed Inc. has reached an agreement to buy the U.S. and Canadian rights to Grunenthal GmbH’s pain killer cebranopadol and a related follow-on compound.

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