Microchip to buy Microsemi for about $8.35 billion

Key Points
  • Microchip Technology said it would buy Microsemi for about $8.35 billion.
  • Microsemi is the largest U.S. supplier of military and aerospace semiconductor equipment.
  • The deal comes amid a new wave of consolidation in the semiconductor industry that included Broadcom unveiling a $117 billion bid to acquire rival Qualcomm.
Microchip Technologies makes the microcontrollers, or chips, that go into simple electronic devices, among other products. Cramer likes the Chandler, Ariz.-based semiconductor because it has an attractive risk-reward and pays a high dividend yield. At 4 percent, its dividend yield is the highest in all the semiconductor space. In addition, Cramer said it's likely to benefit from positive long-term trends. Demand in the wireless space is growing, and that could benefit Microchip Technology. Crame

Microchip Technology said on Thursday it would buy Microsemi, the largest U.S. commercial supplier of military and aerospace semiconductor equipment, for about $8.35 billion.

The deal comes amid a new wave of consolidation in the semiconductor industry that included Singapore-based chipmaker Broadcom Ltd unveiling a $117 billion bid to acquire U.S. rival Qualcomm Inc.

Aliso Viejo, California-based Microsemi supplies high-performance analog and mixed signal integrated circuits and semiconductors to the aerospace and defense, communications, data center and industrial sectors.

Microsemi, which has grown in the last few years through a wave of acquisitions, has said it wants to expand further in aerospace and defense.

Microchip currently gets about 2 percent of its annual sales from the aerospace and defense markets.

The deal would also strengthen Microchip's base in the computing and communications sectors, which together accounted for less than 15 percent of its full-year sales.

The transaction includes a $68.78 per share cash offer, representing a premium of about 7 percent to Microsemi's closing price on Thursday.

Shares of Microchip were up about 5 percent at $93.40 in extended trading, while that of Microsemi rose about 5 percent to $67.55, shy of the offer price.

Earlier this week, The Wall Street Journal reported that Arizona-based Microchip was in talks to buy Microsemi.

Microchip said on Thursday the deal, which is expected to close in the second quarter of 2018, would immediately add to its adjusted earnings per share.

The chipmaker expects an estimated savings of $300 million in the third year after the deal close.

J.P. Morgan, which is providing $5.6 billion in committed financing for the deal, was Microchip's financial adviser, and Qatalyst Partners advised Microsemi.

Microchip on Thursday also narrowed its net sales forecast for the fourth quarter ending March to a range of flat to down 2 percent, from up 1 percent to down 3 percent.

The company said it now expects adjusted earnings per share for the quarter to be at between $1.32 and $1.37, compared with $1.30 to $1.39 per share previously.