Chip ETFs In Focus On Analog Devices Deal To Buy Maxim

The semiconductor space is heating up with the expected largest U.S. merger so far this year. This is especially true as chipmaker giant Analog Devices (ADI - Free Report) plans to acquire rival semiconductor Maxim Integrated Products (MXIM - Free Report) for $21 billion in an all-stock deal. The enterprise value of the transaction is $68 billion.

Deal in Focus

Under the terms of the deal, Maxim shareholders will receive 63 cents of ADI common stock for each share owned at the closing of the transaction. ADI shareholders will own 69% of the new entity, while Maxim shareholders own the remaining 31%. The transaction, already approved by both company's boards, is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes. It would likely require approval from regulators in the United States, China, and the European Union.

The deal, which is expected to close in the summer of 2021, would create a competitor to Texas Instruments (TXN - Free Report), the leader in analog semiconductors with a $119 billion market value. It is aimed at boosting its market share in automotive and 5G chipmaking.

The combined entity is expected to have revenues of $8.2 billion and free cash flow of $2.7 billion on a pro-forma basis. The combined company will have more than 50,000 products and over 10,000 engineers, serving more than 125,000 customers, with an addressable market of $60 billion.

The transaction is expected to be accretive to adjusted earnings per share in 18 months subsequent to closing with $275 million of cost synergies by the end of year two.

Increase in Guidance

Analog Devices raised July quarter revenues to $1.45 billion from the previous guidance of $1.32 billion, reflecting strength in communications and industrial end markets. The company also increased adjusted earnings per share to $1.33 from $1.08. Meanwhile, Maxim expects revenues of about $545 million for its fiscal fourth quarter, above the company’s previous guidance range of $480-$540 million.

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