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Intel acquires Altera Corp in a $16.7 billion deal

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June 1, 2015

Intel said earlier this morning that it is acquiring Altera Corp. for $16.7 billion in a transaction that will take out yet another chipmaker.

The deal will also add to a record year for industry consolidation in the chip making segment.

Intel will pay $54 a share in cash for Altera. That’s a premium of about eleven percent over Altera’s closing stock price on Friday and 56 percent from March 26, the day before the possibility of a deal was first reported.

Intel, like other global chipmakers, is seeking an efficient method to mitigate slowing growth amid rising costs and trying to defend its most profitable business.

The largest deal ever in the $300 billion semiconductor industry was announced last week when Avago Technologies agreed to acquire Broadcom Corp. for the staggering amount of $37 billion.

“Management teams everywhere are looking at their business and predicting little growth going forward,” said Gus Richard, an analyst at Northland Securities. “The merger and acquition wave is a direct function of them trying to drive earnings growth. Intel’s acquisition of Altera is one of the few strategic moves that is being made currently, and it's an important one in deed.”

Intel’s Altera acquisition and Avago’s Broadcom deal makes 2015 already a record year for semiconductor acquisitions, and underlines how agressive and competitive the global industry has become.

The Altera purchase 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.

Overall, Intel has been looking for growth well beyond its struggling personal computer market, which has been declining since it peaked four-and-a-half years ago.

Altera chips are used in a variety of markets ranging from communications to consumer electronics.

Altera’s devices can have their functions 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 CEO 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 also help Intel defend itself and extend its most profitable business: supplying server chips used in today's data centers.

While overall sales of semiconductors for personal computers are declining as more and more consumers rely on tablets and smartphones to get online, the data centers needed to churn out data and services for those mobile devices are driving orders for higher-end Intel processors and shoring up profitability.

Overall, sales at Intel’s data-center division rose about 19.2 percent in the first quarter as Internet companies such as Google and Facebook are in the process of building their various server operations.

Source: Intel Corp.

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