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Analog Devices to buy rival Maxim in US$21b chip deal

[MASSACHUSETTS] Analog Devices agreed to acquire rival Maxim Integrated Products for US$20.9 billion in stock, heralding what may develop into a new round of consolidation in the US$400 billion semiconductor industry.

Analog Devices will pay 0.63 share for each Maxim share, representing a 22 per cent premium to Maxim's closing share price on Friday, the two companies said in a statement early Monday. Analog Devices shareholders will own about 69 per cent of the combined company, which will be valued at about US$68 billion including debt, the companies said.

The acquisition of San Jose, California-based Maxim creates a larger rival for Texas Instruments in the market for analog and embedded processor chips, crucial components in the spread of computing and intelligence to everyday devices. Analog Devices shares slipped 2.6 per cent to US$121.26 at 9.52 am in New York. Maxim was up 13 per cent to US$72.67.

After a lull in such combinations caused by trade tension between China and the US and regulatory holdups, Nvidia Corp won approval for its acquisition of Mellanox Technologies in the Asian country in March, creating new confidence that deals such as the Maxim purchase can go ahead.

Acquisitions in general are starting to return after several quiet months while companies dealt with the fallout from the Covid-19 pandemic. The move by Analog Devices comes on the heels of Uber announcing a US$2.65 billion deal for Postmates, Allstate agreeing to a record US$4 billion takeover of National General Holdings and Warren Buffett's Berkshire Hathaway spending roughly the same amount on a gas pipeline and storage assets.

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Some chip deals have either been delayed or abandoned if they require approval in China, the world's largest market for semiconductors. The US is home to the biggest chunk of the world's producers of the electronic components.

Analog Devices is currently less than half the size of market leader Texas Instruments by revenue. While Maxim wouldn't allow it to close the gap totally, it would broaden the range of products in the analog portfolio, something that Texas Instruments has touted as helping to cement its dominance.

All three companies specialise in analog and embedded computing components. Once a sleepy backwater of the industry, this segment has enjoyed a resurgence as the list of uses and customers has grown in recent years. Analog chips convert real-world things like sound and pressure into electronic signals, and the rush to add automation to factory equipment and buildings and to move cars toward a world where they won't need human drivers has stirred new demand.

It's also a very profitable area of the chip industry. Analog Devices and Maxim have gross margins, or the percentage of sales remaining after deducting the cost of goods sold, in the region of 65 per cent.

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