Intersil Corp (NASDAQ:ISIL) is selling to Renesas Electronics of Japan for $3.2 billion. For Renesas, the acquisition is designed to help it strengthen its position in automotive semiconductor space. But what is the value in the transaction for Intersil?
A 44% premium
Renesas is paying $22.50 a share to get hold of Intersil Corp (NASDAQ:ISIL) and that’s a big deal. The offer values Intersil at a premium of nearly 44% to its stock price on the trading day immediately before it became known that Renesas was pursuing it.
If you look at how Intersil stock has been behaving since the deal was announced, it is clear that investors are excited about the buyout. Intersil shareholders will have to vote and regulators weigh in before the deal can close. Renesas is hoping that it can finish the business by 1H2017.
Defending the premium
You get a sense that Renesas is paying a lofty value for Intersil Corp (NASDAQ:ISIL) when you hear the executives of Renesas defend the premium offer. According to Renesas, there is every justification to pay a premium price for ISIL and one of them is that the company stands to reap massive synergy that will come from the acquisition.
Renesas is paying for the buyout in cash. However, it is not clear whether the company intends to borrow to fund the acquisition.
The rise of automotive chips
Renesas is buying Intersil Corp (NASDAQ:ISIL) to bolster its automotive semiconductor division at a time when carmakers are putting increasingly more chips in the products. The company is betting that the technology and the product portfolio that ISIL is bringing on the table will enable it to offer better and wide array of automotive chips. In vehicles, chips are increasingly being used to support automated driving, battery management and in-car infotainment.
Renesas’ acquisition of Intersil Corp (NASDAQ:ISIL) continues the wave of consolidation in semiconductor industry amid a shift in the market. With the slowdown in smartphone and tablet sales, chipmakers are looking to cut cost and expand into new growth areas such as automotive market, thus the wave of consolidation.