Redefining market dynamics, leading semiconductor manufacturer
TriQuint Semiconductor, Inc.
) has inked a definitive agreement to merge with rival
RF Micro Devices Inc.
) in an all-stock transaction. The deal, valued at approximately
$1.6 billion, is termed as a merger of equals. The combined
entity is likely to create a behemoth in the semiconductor
manufacturing industry offering vital components to premier
mobile companies like
) and Samsung Electronics Co. Ltd.
APPLE INC (AAPL): Free Stock Analysis Report
RF MICRO DEVICE (RFMD): Free Stock Analysis
SKYWORKS SOLUTN (SWKS): Free Stock Analysis
TRIQUINT SEMICO (TQNT): Free Stock Analysis
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Under the terms of the agreement, TriQuint shareholders will
receive 1.675 shares of the combined entity, while RFMD
shareholders will receive a single share for every share held.
Post-merger, the companies will execute a one-for-four reverse
stock split to create approximately 145 million outstanding
Former shareholders of both the companies are likely to own 50%
shares each of the combined entity. The transaction, at an
implied price of $9.73 for each TriQuint share, represents a 5.4%
premium based on its closing price of $9.23 on Feb 21.
With annual revenues of about $2 billion, the combined entity
will bring under a common platform all the critical radio
frequency (RF) components that are essential for fabricating
mobile devices, thereby creating an undisputed market leader with
a diversified product portfolio. These include power amplifiers
(PAs), power management integrated circuits (PMICs), antenna
control solutions, switch-based products and premium filters.
This in turn will likely offer better bargaining power and make
it harder for customers such as Apple and Samsung to push back on
pricing. With global smartphone users predicted to triple to 5.6
billion by 2019, the merger provides a huge revenue-generating
potential to the new entity.
At the same time, the merger strengthens the combined company's
ability to better serve the infrastructure and defense/aerospace
industries with advanced gallium nitride (GaN) solutions for
additional markets and applications, and foundry services to
support radar, next generation base stations, optical
communications and the Internet of Things. The newly formed
entity is also expected to be a leading player in this sphere
with approximately $500 million in annual revenues.
In addition, the merger will offer synergistic benefits and
increase the profitability of the new company through economies
of scale and mutual sharing of manufacturing expertise, research
and development costs and adjustment of staffing expenses. The
transaction is expected to generate $75 million of cost savings
in the first year of its operation, followed by another $75
million in the second year. Post- merger, the deal is also
expected to be accretive to non-GAAP earnings in the first full
fiscal year of its operation.
With a broad product portfolio and improved operating model, the
merger is likely to create new growth opportunities in three
large global markets, namely, mobile devices, network
infrastructure and aerospace/defense. The merger is expected to
benefit the overall industry as well with technological
innovations leveraging on a huge talent pool and combined
resources. The combination will also offer higher data throughput
for the overall benefit of carriers and consumers alike.
However, TriQuint's decision to merge with RFMD has stirred up a
hornet's nest as to whether the proposed deal is made in the best
interest of TriQuint's shareholders. As such, Robbins Arroyo LLP,
which represents individual and institutional investors in
shareholder rights litigation, is investigating the transaction
to find whether TriQuint is undertaking a fair process to obtain
maximum value and adequately compensate its shareholders.
In the fourth quarter of 2013, TriQuint had recorded healthy
year-over-year increases in net sales and margins. Net sales
increased 15% year over year to $267.7 million. On an end-market
basis, quarterly revenues in the Mobile Devices market improved
26.2% year over year to $190.0 million driven by healthy demand
for new LTE (Long Term Evolution) products and a significant
product ramp up in the quarter.
During 2013, TriQuint introduced 190 new products, strengthening
its strategic position in the RF industry. The company recorded
less revenues from lower margin products, including commodity
power amplifiers and transmit modules as it focused more on
high-margin products. Sales of high-margin products increased 36%
in 2013 (growing faster than the overall market) due to solid
demand for premium filters and high-performance broadband
Given the impressive numbers, it is believed that TriQuint could
well have prospered on its own instead of merging with RFMD. In
addition, a premium of just 5.4% is argued to be substantially
below the average one day premium of nearly 51% for comparable
transactions in the past three years. TriQuint shareholders
possess the right to file a lawsuit to ensure that the board of
directors obtains the best possible price for its shareholders.
Whether the transaction is made in the best interest of
shareholders or not, it surely has led to industry consolidation
with pricing becoming more rational. It can lead to more of these
transactions in the near future as rivals like
Skyworks Solutions Inc.
) and Avago Technologies Limited take stock of the situation.
Meanwhile, TriQuint's share prices soared 26.1% on the news to
close at $11.64, while that of RFMD rose 21.0% to $7.03. The
transaction is expected to close in the second half of 2014
subject to the fulfillment of mandatory regulatory approvals.
Both TriQuint and RFMD presently have a Zacks Rank #3 (Hold).