Markets

Why PMC-Sierra Inc. Jumped 33% Tuesday

Source: PMC-Sierra.

What: Shares of PMC-Sierra soared 33% higher on Tuesday morning, following a confirmed buyout bid from fellow semiconductor maker Skyworks Solutions . PMC-Sierra shares haven't traded at these levels since 2006.

So what: In an all-cash transaction, Skyworks wants to buy PMC-Sierra for $10.50 per share. The bid works out to approximately $2.0 billion, including PMC-Sierra's $73 million of net cash on hand. The offer has been approved by both companies' boards of directors, and should close in the first half of 2016, assuming that PMC-Sierra shareholders and regulatory reviews give their go-aheads.

Now what: This acquisition is a play on the big data market, where PMC-Sierra's storage and networking products fill gaps in Skyworks' current portfolio.

"PMC enables us to substantially expand our serviceable market within some of the fastest growing segments in technology including cloud storage and optical networking," said Skyworks CEO David Aldrich in a press statement.

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

And with financial debt of just 1.5 times trailing EBITDA profits, Eros compares well with stateside rivals at 3.4 times EBITDA, or , whose ratio stands at 2.8. Lions Gate and CBS are also increasing their effective debt load, while Eros is reducing its own.

And the deal should immediately start adding to Skyworks' bottom line. PMC-Sierra should add something like $0.75 per share to Skyworks' annual earnings, including the effect of $75 million in operational synergies. To put that boost into perspective, Skyworks can look back at trailing earnings of $3.83 per diluted share these days. PMC-Sierra should also boost its new owner's annual sales by roughly 17%.

Investors seem to be skeptical about the value of this deal. On Monday night, the market caps of these two companies added up to $17.1 billion. On Tuesday, accounting for PMC-Sierra's 33% jump and a 5% decline in Skyworks shares, the combined value has fallen by $0.3 billion.

The next billion-dollar iSecret

The world's biggest tech company forgot to show you something at its recent event, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here .

The article Why PMC-Sierra Inc. Jumped 33% Tuesday originally appeared on Fool.com.

Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Skyworks Solutions. Try any of our Foolish newsletter services free for 30 days .We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

SWKS

Other Topics

Stocks

Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More