April 4, 2011 – LOS ANGELES (Reuters) - Texas Instruments Inc <TXN.N> plans to buy smaller rival National Semiconductor <NSM.N> for about $6.5 billion in one of the microchip industry's largest deals in years.
KIM CAUGHEY FORREST, SENIOR ANALYST, FORT PITT CAPITAL
"It's a fit from a product standpoint. I'm just not sure about the price, that's what they have to explain to us.
"Texas Instruments has been a pretty prudent company. There is either some kind of buried patent (owned by National Semi) that is unbelievably attractive to them, or there were other bidders and they felt pressured to get it.
"Digital chip makers like Intel used to disdain analog, but it's the way you get information in and out of these mobile devices. So it could be the deep pockets of Intel. Or it could be a Chinese foundry" also interested in National Semi.
HENDI SUSANTO, ANALYST, GABELLI & CO
"It's more than 10 times EV to EBITDA��� I think the premium is high. This deal came as a surprise. First, TI will have additional fabs. I expect some product overlaps in analog and mixed signals."
TORE SVANBERG, ANALYST, STIFEL NICOLAUS
"National Semiconductor was a company that was struggling to grow its business, whereas TI was a company that really wanted to continue to emphasize analog. So it makes sense for both companies.
"The multiple is about four times sales. If you look at that on a historical basis that's probably average. I do recognize that's a high multiple based on National's price today, but four times sales does not seem too high or too low, especially for a company that generates gross margins in the high 60s.
"Strategically, it makes a lot of sense. A few years ago, TI announced that they were increasingly getting out of wireless business and really focusing on analog and this is part of that strategy. They had also expressed that they want to increase their share in analog and certainly with National they will be able to do that. They have about 13 percent share of the analog market today. When they acquire National, that share will probably start to touch 20 percent.
"TI has definitely done a lot of acquisitions in analog in the past and they've done those pretty well. They have a good track record in integrating other analog companies."
MAHESH SANGANERIA, ANALYST, RBC CAPITAL
"National was trading at a discount so if you make up for that, it's probably not a huge (premium). There was concern they were going to underperform in terms of revenue growth.
"It gives TI a product portfolio for the mobile segment. Twenty-five percent of National's revenue comes from power management for handsets, which TI competes with, but I think that combined they can make it much better. There's probably a lot of synergy."
KEITH WIRTZ, CHIEF INVESTMENT OFFICER, FIFTH THIRD ASSET
"At first blush, this looks like a good strategic move on Texas Instruments' part. TI has been focused on analog chips and this seems to be a good fit based on where Texas Instruments is going.
"Looking at the financial terms, I don't think this will be dilutive."
DOUG FREEDMAN, ANALYST, GLEACHER & CO
"They've got the ability to take this product portfolio and bring it into a lower-cost manufacturing footprint, possibly.
"It's about gaining product portfolio. It's a product portfolio addition. There's also sales-team synergies. You're getting rid of a sales and marketing force that all called on the same customers.
"We're basically overselling analog, in 10 different analog companies all selling to the exact same customers with an end market that is growing 3 to 4 percent.
"End markets aren't growing fast enough to justify all these companies in this space."
SRINI PAJJURI, ANALYST, CREDIT AGRICOLE SECURITIES
"It's certainly a surprise because TI management has been saying they're not interested in large acquisitions. They have built a lot of capacity in the past few years.
"It's a huge premium. National hasn't done a whole lot, it's been a beaten-down stock. The deal wouldn't have happened at a lower price.
"It's difficult to buy a company when the stock is beaten down, (you) have to pay a premium.
"Obviously they have a lot of capacity, it will take time for TI to transfer National's products into their factories."
BRIAN COLELLO, ANALYST, MORNINGSTAR
"It's very surprising. Texas Instruments has made some shrewd investments to expand their production capacity in an attempt to gain growth organically. We thought that would drive growth.
"Analog (chip) acquisitions of this size are fairly rare, so this deal is surprising to us.
"It will improve TI's position in power management chips, that's where National has particular strength. I'm very curious to hear what they say on the call on their strategy of combining the two firms."
(Reporting by Noel Randewich in San Francisco, Bill Rigby in Seattle and Jennifer Saba, Paul Thomasch and Jennifer Ablan in New York)