Why Integrated Device Technology Stock Jumped Tuesday

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What happened

Shares of semiconductor company Integrated Device Technology (NASDAQ: IDTI), or IDT, jumped on Tuesday, rising as much as 11.5%. The stock is up 10.7% as of 2:07 p.m. EDT.

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The stock's gain follows news that Japanese chipmaker Renesas has signed a definitive agreement to acquire IDT in an all-cash deal valued at about 733 billion yen, or $6.7 billion.

So what

"The acquisition combines two recognized leaders in embedded processors and analog mixed-signal semiconductors," explained Renesas in a press release, "each with unique strengths in delivering products to improve performance and efficiency in high-computing electronic systems."

Today's gain adds to IDT stock's rise on Aug. 31 when news first broke that IDT could be acquired by Renesas. At the time, the deal was rumored to be valued at around $6 billion.

The stock's gain on Tuesday makes sense, as the $6.7 billion deal translates to $49 per IDT share. Even after IDT's rise on Tuesday, shares are trading below $47.

Now what

Renesas expects the deal to be "highly accretive" to its pro forma non-GAAP gross margin, non-GAAP earnings per share, and free cash flow.

Though the boards of directors of both companies unanimously approved the transaction, it is still subject to shareholder votes and regulatory approvals. But Renesas management expects the deal to close sometime during the first half of 2019.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.