Linear Technology Strikes a Massive Merger Deal

By Markets Fool.com

Image source: Linear Technology.

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As if last quarter's return to sequential top- and bottom-line growth wasn't enough, Linear Technology(NASDAQ: LLTC) repeated the feat with its fiscal fourth-quarter 2016 results Tuesday after the market close. But the biggest news of the day is a now-confirmed report that Linear Technology has entered into a definitive agreement to be acquired by Analog Devices(NASDAQ: ADI) in a deal valuing Linear at a whopping $14.8 billion.

Before we get to the big acquisition, however, let's take a closer look at what Linear Technology achieved in its latest quarter:

Linear Technology results: The raw numbers

Metric

Fiscal Q4 2016 Actuals

Fiscal Q4 2015 Actuals

Growth (YOY)

Sales

$373.8 million

$379.5 million

(1.5%)

Net income

$132.4 million

$132.7 million

(0.3%)

Earnings per share

$0.54

$0.54

N/A

YOY = year over year. Data source: Linear Technology.

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What happened with Linear Technology this quarter?

  • Despite losing ground on a year-over-year basis, Linear Technology managed to increase revenue 3.5% sequentially from last quarter. Net income also grew 3.1% sequentially, and net income per share rose 4% over the same period.
  • Ended the quarter with cash, cash equivalents, and marketable securities of $1.45 billion, an increase of $85.2 million from fiscal Q3.
  • Generated cash flow from operations of $174.9 million, or 47% of total revenue.
  • Repurchased 0.2 million shares for $8.1 million.
  • Gross margin improved to 76.4%, and operating margin improved to 45.9%.
  • Agreed to be acquired by Analog Devices in a cash and stock deal valuing the combined companies at roughly $30 billion, with roughly $5 billion in anticipated annual revenue.
    • Linear Technology shareholders will receive $46 per share in cash and 0.2321 of a share of Analog Devices common stock for each share of Linear Technology common stock they own. Based on Analog Devices most recent close, that values Linear Technology at roughly $60 per share, or an equity value of $14.8 billion.
    • The deal is still subject to regulatory approvals and the approval of Linear Technology shareholders, but is expected to close by the end of the first half of calendar 2017.
    • The deal should be immediately accretive to Analog Devices' adjusted earnings per share and free cash flow.

What management had to say

"We met the midpoint of our revenue guidance with growth of 3.5% sequentially over the March quarter," elaborated Linear Technology CEO Lothar Maier. "We are pleased that we have bounced back with three sequential quarters of revenue growth after suffering a significant decline in the first fiscal quarter."

As Bob Swanson, Linear Technology's executive chairman and co-founder, said about the merger agreement:

For 35 years,Linear Technologyhas had great success by growing its business organically. However, this combination ofLinear TechnologyandAnalog Deviceshas the potential to create a combination where one plus one truly exceeds two. As a result, the Linear Technology Board concluded that this is a compelling transaction that delivers substantial value to our shareholders, and the opportunity for additional upside through stock in the combined company.Analog Devicesis a highly respected company. By combining our complementary areas of technology strength, we have an excellent opportunity to reinforce our leadership across the analog and power semiconductor markets, enhancing shareholder value.

Looking forward

Because of its impending transaction with Analog Devices, Linear Technology has opted not to offer financial guidance for the fiscal first quarter of 2017 or any future periods. That's fair enough considering the announcement effectively pushed shares of Linear Technology to levels not seen in more than a decade -- and this after more than two years of watching the share price stagnate. With that in mind, it seems fair to say Linear Technology shareholders have plenty of reason to celebrate today.

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Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Linear Technology. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.