QLogic (QLGC) to be Acquired by Cavium for $1.36 Billion

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QLogic Corporation QLGC is being snapped up by semiconductor manufacturer Cavium Inc CAVM in a cash and stock deal worth $1.36 billion. The deal values each QLogic share at $15.50, of which $11 will be paid in cash and the rest in Cavium's stock, representing 13% premium to QLogic's closing price yesterday.

Buyout rumors surrounding QLogic have been doing the rounds for some time now. In April this year, a Bloomberg report had revealed that the networking infrastructure company had teamed up with a financial advisor- Qatalyst Partners. It was then widely speculated that the company was exploring strategic opportunities for its potential sale.

We note that despite having strong fundamentals, QLogic shares have not been doing that well for a while.



QLogic holds the leading position in the Ethernet market on the back ofto its strong product portfolio. In 2015, the company had double-digit lead in terms of market share over its peers. Its strong balance sheet is another positive. It had $355 million in cash in hand as of Mar 29, 2015, which is included in the acquisition price of $1.36 billion.

Of late, the company is seeing increasing challenges in driving growth owing to the ongoing transition from Ethernet to Fibre Channel networks on the one hand and the shift from on-premise infrastructure to cloud deployments on the other.

In the past one year, the company's shares have lost over 11.8% of their value. But the news of acquisition was widely cheered by investors, sending shares up as much as 12% in the aftermarket session yesterday.

However, Cavium shares plunged 7.6% following the news. Cavium is a relatively small player in the semiconductor space. With the acquisition of QLogic, the company is looking to expand its data-center and storage business and widen its clientele base.

As per Cavium, the combined company will generate $900 million in LTM revenues with $45 million of cost synergies to be achieved by 2017. The deal will boost Cavium's 2017 non GAAP earnings by 60 to 70 cents. 

Cavium will fund the deal using $220 million in cash and $750 million in debt financing, which includes term loan of $650 million, short-term bridge debt of $100 million and $400 million in Cavium equity shares. 

The deal approved by both the boards is subject to regulatory approval. The transaction is expected to close in the third quarter of 2016.

At present, QLogic carries a Zacks Rank #3 (Hold) while Cavium is a Zacks Rank #4 (Sell). Better-ranked stocks in the tech space include Netgear Inc. NTGR and Amkor Technology, Inc. AMKR . Both sport a Zacks Rank#1 (Strong Buy).

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QLOGIC CORP (QLGC): Free Stock Analysis Report

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This article appears in: Business , Investing , Stocks
Referenced Symbols: NTGR , AMKR

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