Intel Corp agreed to buy Altera Corp for $16.7 billion as the world’s biggest chipmaker seeks to make up for slowing demand from the PC industry by expanding its line-up of higher-margin chips used in data centers.
By combining with Altera, Intel will be able to bundle its processing chips with the smaller company’s programmable chips, which are used, among other things, to speed up Web-searches.
Intel said on Monday it would offer $54 per share for San Jose, California-based Altera, a 10.5 per cent premium to Altera’s close on Friday.
Altera’s shares were changing hands at $51.78, well below the offer price, in afternoon trading.
That suggested that some investors felt the deal could face regulatory hurdles, but analysts said there was virtually no overlap of products between the companies.
Intel’s shares were down about 1.7 per cent at $33.86.
The deal valued Altera at about 9 times forward revenue, according to Thomson Reuters data.
The transaction is the third big one in the highly fragmented chip industry this year. In the industry’s biggest-ever deal, Avago Technologies Ltd agreed last week to buy Broadcom Corp for $37 billion.
Altera’s programmable chips will allow Intel to increase the computational capability of its Xeon server chips, which could be under attack post the Avago-Broadcom merger, Summit Research analyst Srinivasan Sundararajan told Reuters.
NXP Semiconductors NV set off the latest round of deals in March when it agreed to buy Freescale Semiconductor Ltd for $12 billion.
The deal is Intel’s biggest ever, outstripping its $7.7 billion acquisition of security software maker McAfee in 2011.
It also underscores Intel Chief Executive Brian Krzanich’s determination to expand beyond chips for PCs, the company’s mainstay. Intel slashed nearly $1 billion from its first-quarter revenue forecast in March, saying that small businesses were delaying upgrading their computers.
Personal computer shipments fell 5.2 per cent in the first three months of this year, extending three years of decline, according to research firm Gartner.
Net revenue from Intel’s PC group increased just 4 per cent in 2014, generating about 62 per cent of total revenue, while revenue in its data center group increased 18 per cent, providing just over a quarter of overall revenue.
The deal will also help Intel become more involved in the so-called Internet of Things – the concept of connecting ordinary household devices to the Internet.
The New York Post reported on Thursday that Intel and Altera had restarted talks.
Up to Friday’s close, Altera’s shares had risen 41.3 per cent since the Wall Street Journal reported on March 27 that the two companies were in talks. Intel’s shares rose 14.6 per cent.
JP Morgan Securities LLC and Rothschild Inc are financial advisers to Intel. Gibson, Dunn & Crutcher LLP and Weil, Gotshal & Manges LLP are legal advisers.
Goldman Sachs & Co is Altera’s financial adviser, and Wilson Sonsini Goodrich & Rosati Professional Corp is legal adviser.