Qualcomm to buy Atheros for around $3.2 bn
Qualcomm Inc plans to buy Atheros Communications Inc for roughly USD 3.2 bn in cash, showing its determination to become a major player in supplying chips for smartphones and tablet computers.
January 06, 2011 / 15:20 IST
Qualcomm plans to buy Atheros Communications for roughly USD 3.2 bn in cash, showing its determination to become a major player in supplying chips for smartphones and tablet computers.
Qualcomm is clearly betting the deal -- at a 21.6 premium to Atheros' share price before talk of the takeover began to circulate this week -- will beef up its position in mobile devices, a market expected to explode in 2011 with new tablet computer offerings to compete against Apple's iPad.Qualcomm is already a major player in making microchips that handle data crunching and voice communication in phones. But until now, it has made less progress on its own in developing chips tablet PCs that incorporate advanced networking functions.With Atheros, it is buying a key producer of chips used in WiFi, bluetooth and ethernet networking, along with GPS systems. Its chips appear in a suite of electronics devices, including networking equipment, personal computers, mobile telephones, mobile gaming devices, televisions and printers.The company's two biggest customers are Hon Hai Precision Industry Co. and Nintendo Co., according to its most-recent annual report. Others include Apple Inc, Dell Inc, Hewlett-Packard Co. and Microsoft Corp.Qualcomm said on Wednesday it will pay USD 45 per share for Atheros. The New York Times reported the potential acquisition on Tuesday, sending Atheros shares up 18.9% to USD 44 on the Nasdaq. In early trading, Atheros shares rose 58 cents to USD 44.58, and Qualcomm shares rose 51 cents to USD 51.48.Based on 71.6 mn outstanding Atheros shares as of October 20, the acquisition is worth USD 3.2 bn. Qualcomm said the "enterprise value" of the transaction is USD 3.1 bn.Daniel Amir, an analyst with Lazard Capital Markets, pointed to three positives in the deal for Qualcomm: It could become a "big combo chip player in the handset or tablet" market; it gets access to Atheros' strong customer lineup; and it quickly gets a shot to expand into new markets, including home networking.Still, Amir said in a research note, "We recommend taking money off the table. With the shares trading at close to the USD 45 potential bid, the stock price has surpassed our fair value price target."Amir added, "We believe the risk-reward is balanced at these levels - this is not a judgment on the quality of the bid. We are aware that there is potential for a bidding war if others make an offer and we may even see an offer of (around) USD 50."Craig Barratt, Atheros' chief executive, is expected to become president of Qualcomm Networking and Connectivity following the merger.Qualcomm expects the acquisition to close in the first half of this year, and add "modestly" to earnings per share in its 2012 fiscal year excluding items. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
