Chipmaker Cavium (CAVM) will plug in network equipment maker QLogic (QLGC) after striking a $1.36 billion takeover to diversify earnings away from the highly competitive semiconductor market.
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The cash-and-shares buy will give Cavium a more direct footprint in the data centre, as well as the $350 million-plus on QLogic’s balance sheet.
“The scale of operations of a almost $1 billion revenue business will allow the combined company to deliver better solutions for customers and create more career opportunities for employees”, said Christine King, executive chairman of QLogic, speaking in a press statement.
QLogic’s advanced connectivity and storage solutions is complementary to Cavium’s portfolio of networking, compute, and security solutions.
Ali invoked synergies in manufacturing, sales and operations, suggesting the combined workforce will eventually be trimmed. Upon satisfaction of the conditions to the exchange offer, and after the shares tendered in the exchange offer are accepted for payment, the agreement provides for the parties to effect, as promptly as practicable, a merger, which would not require a vote of QLogic’s stockholders, and which would result in each share of QLogic common stock not tendered in the exchange offer being converted into the right to receive $11.00 in cash and 0.098 of a share of Cavium common stock.
The deal is the latest in a series of acquisition by chipmakers that have been pushed into deals by stagnant revenue growth due to fierce competition. Avago Technologies Ltd. bought Broadcom Corp. for $37 billion, forming Broadcom Ltd., while Intel Corp. purchased Altera Corp. for $16.7 billion. Want to be alerted before Cramer buys or sells NXPI?
OppenheimerFunds Inc. increased its stake in shares of Cavium by 21.0% in the fourth quarter. With a market capitalization of $2.78 billion it is a relative minnow in the sector.
CAVM closed Wednesday’s trading at $48.00, up $1.76 or 3.81%, on the Nasdaq. Roughly a quarter of the total purchase price – $355 million – is actually cash now on QLogic’s balance sheet.
The deal, which has an enterprise value of about $1 billion, will enhance Cavium’s data-center and storage business and is projected to boost 2017 adjusted earnings per share by 60 cents to 70 cents.
Cavium will have to raise $400 million in new equity to complete the deal, along with $100 million in short-term bridging debt and $650 million in long-term debt.
Wall Street reaction to news of the proposed acquisition, which was revealed after the close of trade Wednesday, was strong.
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JP Morgan acted as exclusive financial adviser and provided a financing commitment to Cavium.
