Infineon to Buy International Rectifier for $3 Billion -- 4th Update

By Dow Jones Business News, 
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By Don Clark And Ulrike Dauer

Infineon Technologies AG agreed to buy International Rectifier Corp. for about $3 billion, a deal uniting mature semiconductor makers that points to quickening consolidation in the sector.

The German company's $40-a-share offer represents a 51% premium to International Rectifier's closing share price on Tuesday, and the stock surged by nearly that percentage on Wednesday to $39.10.

Infineon's move is the latest in a wave of combinations between makers of chips and related products, a large market with more than 300 specialized suppliers. Though sales are growing in most segments, companies with cash are finding a series of benefits in acquiring smaller players.

Semiconductor makers, for example, can reach new customers by adding more products--and save money by pushing more chips through one sales force. They can also reduce manufacturing costs by shifting products to run factories at higher volumes.

Reducing the number of suppliers in a particular niche also tends to reduce price competition, helping the buyer's bottom line.

"You consolidate a market down to three guys and good things happen," said Craig Berger, an analyst who tracks semiconductors for Hedgeye Risk Management.

He adds that low interest rates for debt are another factor that is "juicing" recent activity.

Large deals between established semiconductor makers were relatively rare until Texas Instruments Inc. announced a $6.5 billion deal for National Semiconductor Corp. in 2011. More recent transactions include the purchase last year by Maxim Integrated Products Inc. of Volterra Semiconductor Corp. for $575.3 million, and a $6.6 billion deal for Avago Technologies Ltd. to buy LSI Corp.

In February, RF Micro Devices Inc. announced a deal to buy TriQuint Semiconductor Inc. for about $1.6 billion.

Infineon was formed in 1999 from semiconductor operations of Siemens AG, a German company that traces its work in silicon to 1945. The Munich-based spinoff makes a wide variety of chips for industrial equipment, cars and other applications.

A focus of the latest deal is managing power consumption in products ranging from washing machines to servers and other hardware in corporate computer rooms. Both companies sell products that include individual transistors and modules of multiple components for power management.

Infineon is the No. 1 supplier of those devices, with about 11% of that $20 billion segment, the research firm IHS Technology estimates.

International Rectifier, founded in 1947, has about 4% of that market. The company was founded by Leon Lidow and his son, Eric Lidow, who was succeeded as chief executive by his own son, Alexander. The younger Mr. Lidow left the company following an investigation that led to a 2008 restatement of the company's financial results.

The company, based in the Los Angeles suburb of El Segundo, Calif., specializes in different parts of the power- management market and also is developing products based on a material called gallium nitride that Infineon said was also was attractive.

"Two exciting portfolios are coming together," said Reinhard Ploss, Infineon's chief executive, in a conference call.

Oleg Khaykin, who became International Rectifier's chief executive in 2008, said it has been closing production lines and making other steps to cut costs. "Infineon will get the benefit of those savings," he said, adding that there may be other chances to help the combined companies improve efficiency.

Infineon said it will fund the deal using cash-on-hand and credit facilities. The deal is expected to close late this year or early next year, subject to regulatory approval, the companies said.

International Rectifier also reported Wednesday that it swung to a profit in its fiscal fourth quarter, as all of its customer segments saw gains in revenue. For the period ended June 29, the company reported a profit of $12.9 million, or 18 cents a share, compared with a loss of $6.1 million, or nine cents a share, a year earlier.

Write to Don Clark at don.clark@wsj.com and Ulrike Dauer at ulrike.dauer@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires


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  08-20-141814ET
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This article appears in: Technology

Referenced Stocks: IFNNY , IFX , IRF , MXIM , RFMD

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