May 27, 2024

Texas Instruments to Buy National Semiconductor for $6.5 Billion

Both companies specialize in making “analog” processors, a particular kind of computer chip that converts data from the real world — temperature, light intensity, dust concentrations, shifting magnetic fields — into digital data that a computer can interpret and then back again, if need be, into visual or aural information that a human can understand.

Such chips are critical components in devices like cameras and phones, but they are crucial in a host of other electronic devices and sensors used in industry and medicine. They are frequently custom designed and carry high profit margins compared with commodity computer chips. Demand for the chips has grown as the number of devices needing sensors has grown.

Under terms of the deal, Texas Instruments has agreed to pay $25 a share for National Semiconductor. That is more than a 77 percent premium for National, whose share price closed at $14.07 just before the announcement. In after-hours trading, National’s shares rose almost 73 percent, to $24.30. Texas Instruments shares lost 1.55 percent after hours, to $33.58.

Texas Instruments said it expected to finance the deal by borrowing $3 billion to $4 billion and paying the rest in cash.

The deal would make Texas Instruments the world’s third-largest semiconductor maker, after Intel and Samsung Electronics.

Richard K. Templeton, the chief executive of Texas Instruments, said he believed that the deal would repay shareholders in three to four years by creating accelerated sales growth.

And while such multibillion-dollar mergers are often justified on the grounds of cost savings that may come through layoffs or other consolidation, Mr. Templeton said the bigger emphasis in this case was to use a combined sales force to push the product portfolios of both companies.

“This acquisition is about strength and growth,” Mr. Templeton said in a press release announcing the deal. He also said the companies could save around $100 million a year in administrative costs.

In a conference call with investors, executives from the two companies faced immediate questions on two fronts: whether the companies have too much overlap in their product lines and whether the deal might face antitrust issues.

Texas Instruments now sells about 14 percent of the chip industry’s analog chips, while National sells about 3 percent of that market. Texas Instruments has around 30,000 analog products, while National has around 12,000.

“There is a certain amount of, how do I say this gently, duplication of products,” said Will Strauss, a chip industry analyst with the Forward Concepts Company, which follows the analog chip market. He said that, in light of such redundancies, he and other analysts he talked to were shocked by the deal.

Mr. Templeton deflected such concerns by telling analysts that the product lines differ more than it may appear at first glance. For instance, he said that both companies have strength in analog communications chips but that National’s focus is on making such chips for industrial applications, while Texas Instruments has focused on the consumer market.

In the conference call with investors, Mr. Templeton was asked how many of the product lines were redundant and he answered: “The intent is none.”

He argued that National Semiconductor’s engineers would continue to be able to work independently in coming up with new product lines but would enjoy the benefits of having them sold by the much-larger combined sales force. “The combined sales team will be 10 times larger than National’s is today,” he said in a statement.

Steve Ohr, a chip industry analyst with Gartner, said he did not accept that the two companies had no or few redundant product lines. “I don’t buy it. I simply don’t,” he said. But he said he did not doubt that the combination of the companies would lead to increased sales.

“If you take T.I.’s sales staff and give them more products to sell, obviously you’re going to see more revenue.”

Mr. Templeton also said that the companies were not likely to face antitrust problems in part because of what he said were the differences in their product lines. Still, the companies said they expected it could take six to nine months for the deal to close because they must obtain regulatory approval not just in the United States but in several overseas markets.

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