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Home > Blogs > Anthony Harrington > Pondering the premium on Texas Instruments' acquisition of National Semiconductor

Pondering the premium on Texas Instruments' acquisition of National Semiconductor

M&A | Pondering the premium on Texas Instruments' acquisition of National Semiconductor Anthony Harrington

Texas Instruments’ acquisition of rival chip maker National Semiconductor for $6.5 billion is the biggest M&A deal in the chip manufacturing sector for many years and reinforces the dominance, since the 2008 crash, of corporate acquirers over private equity players. Where, in the easy credit of the boom years, corporate buyers found themselves regularly outbid by PE houses fuelled by easy bank debt, now the boot is on the other foot. TI is paying a massive 78% premium for NatSemi, based on NatSemi’s share price on the day of the bid announcement.

At the time of the announcement no one outside the two companies seemed to have much of a clue why TI wanted to do the deal or why it felt obliged to offer such a rich premium. Analysts speculated that it could be either because IT had got wind of a potential rival bidder for NatSemi and saw sufficient commercial advantage for itself in the deal to be prepared to go in heavy from the start, or because of some deep patent or set of patents inside NatSemi that it really wanted to get its hands on.

What the deal actually gives TI is a very significant increase in its portfolio of analogue chips and access to NatSemi’s distribution channel. (Analogue chips are the work horses converting analogue audio and video to digital format in mobile phones and other devices.) TI has done very well in the last few years, with both Apple and Motorola among its customers. The Apple iPod uses analogue chips made by TI, as does the Motorola Xoom tablet PC.

Commenting on the deal NatSemi’s CEO Don Macleod said that from NatSemi’s point of view the marriage with TI would allow the company to leverage TI’s “much greater scale” in the marketplace and the global TI salesforce. NatSemi has been in the forefront of power management chip design, one of the key themes in the semiconductor sector as the industry responds to the market opportunity created by consumer concerns over global warming. Less power equates to less CO2 emissions and a greener footprint for electronic consumer devices, creating a powerful marketing message for device manufacturers and hence a great selling point for semiconductor manufacturers.

Perhaps some far-sighted analysts inside TI did the math on what adding NatSemi power management would mean to TI chip design going forward and came up with some very interesting numbers. Time will tell as the two companies move to complete the merger. There are some serious regulatory hurdles to be overcome, but both companies expected the deal to complete successfully by the end of 2011.

The deal also gives TI access to NatSemi’s fabrication plants, thus increasing its own fabrication capacity. Market demand for mobile phones and other consumer electronics, particularly from emerging markets, is running at a level where analogue fab plants around the world are running at close to full capacity just to satisfy existing demand, so access to additional fab plants may well have been a key driver in TI’s purchase.

TI is paying cash for the deal, buying NatSemi’s shares, which were priced at approximately $14.00, for $25.00 per share.  It will be interesting to see if this sparks a wave of further M&A activity in the semi-conductor market.

Further reading on M&A, leveraged buyouts and investment banks:


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