Why DTS, Inc. Shares Popped Today

By Evan Niu, CFAMarketsFool.com

Image source: DTS.

Continue Reading Below

What happened

Shares of DTS, Inc. (NASDAQ: DTSI) have popped today, up 23% as of 11:15 a.m. EDT, after Tessera Technologies (NASDAQ: TSRA) announced that it would acquire DTS in an all-cash deal valued at $850 million. The acquisition price is $42.50, representing a 28% premium compared to DTS' 30-day volume-weighted average price as of yesterday.

So what

More From Fool.com

Originally specializing in semiconductor packaging, Tessera's core business has evolved and is now focused on developing and licensing intellectual property for a wide range of end markets, including mobile computing, automotive, and biometrics, among others. By acquiring DTS, Tessera will get its hands on a very valuable portfolio of audio technologies that can build upon its business. It's a highly complementary deal, as audio technologies go well with the imaging technologies that Tessera already licenses.

Now what

The combined company is expected to generate around $450 million in revenue this year, of which half will be related to product licensing. The deal is expected to be immediately accretive to earnings per share and free cash flow, and cost-saving synergies are estimated at $15 million within the first 12 to 18 months. There will also be revenue synergies from expanding markets and cross-selling opportunities. Tessera will fund the deal mostly with $600 million of debt financing, with the rest coming from cash on hand.

A secret billion-dollar stock opportunity The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.