Intel buys Altera for US$16.7b as chip deals accelerate

[SAN FRANCISCO] Intel Corp said it agreed to buy Altera Corp for US$16.7 billion in a deal that will take out yet another chipmaker and add to a record year for industry consolidation.

The world's largest chipmaker will pay US$54 a share in stock and cash for the maker of programmable logic semiconductors, Intel said on Monday in a statement. That's a premium of 11 per cent over Altera's closing share price on Friday and 56 per cent from March 26, the day before the possibility of a transaction was first reported.

Intel, like other chipmakers, is seeking a way to mitigate slowing growth amid rising costs and trying to defend its most profitable business. The largest deal ever in the US$300 billion semiconductor business was announced last week when Avago Technologies Ltd agreed to buy Broadcom Corp for US$37 billion.

"Management teams are looking at their business and predicting little growth going forward," said Gus Richard, an analyst at Northland Securities Inc.

"The M&A wave is a function of them trying to drive earning growth. Intel's purchase of Altera is one of the few strategic moves that is being made currently."

Intel's Altera purchase and Avago's Broadcom deal makes 2015 already a record year for semiconductor dealmaking.

The transaction will add to Intel's non-GAAP earnings per share and free cash flow in the first year after it closes, which is expected within six to nine months, the company said. It will be funded with cash and debt.

Altera earlier rejected an Intel bid, spurring some shareholders to pressure Altera to reconsider an offer they thought valued the company higher than it would be on its own.

Intel has been looking for growth beyond the struggling personal-computer market, which has been declining since it peaked in 2011. Altera chips are used in a variety of markets ranging from communications to consumer electronics.

Altera's devices can have their function updated, even after they've been installed in end-devices. While they're sold in relatively small volumes, programmable logic usually requires the latest in production technology because it's some of the largest chips in the industry.

Intel Chief Executive Officer Brian Krzanich is trying to find more customers, outside of his own chip business, for Intel's factory network, which the company says is the most advanced in the industry.

Acquiring Altera may help Intel defend and extend its most profitable business: supplying server chips used in data centers. While sales of semiconductors for PCs are declining as more consumers rely on tablets and smartphones to get online, the data centers needed to churn out information and services for those mobile devices are driving orders for higher-end Intel processors and shoring up profitability.

Sales at Intel's data-center division rose 19 per cent in the first quarter as Internet companies such as Google Inc and Facebook Inc built out their server operations.

BLOOMBERG