Why Shares of Exar Corp. Jumped Today

What happened

Shares of Exar Corp. (NYSE: EXAR), a designer of analog mixed-signal integrated circuits, surged on Wednesday after the company announced that it had agreed to be acquired by MaxLinear (NYSE: MXL). Exar stock was up 22% at noon, while MaxLinear stock had risen 3.4%.

So what

MaxLinear has agreed to pay $13 in cash for each share of Exar, representing a 22% premium over the stock's closing price on March 28. Net of the cash on Exar's balance sheet, the deal is valued at $472 million. MaxLinear will fund the acquisition with cash from its balance sheet and a $425 million term loan.

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Image source: Exar Corp.

MaxLinear CEO Kishore Seendripu expects the deal to drive earnings and free cash flow higher:

While MaxLinear didn't provide details on the exact effects the deal will have on earnings and free cash flow, the company does expect to achieve $15 million of annualized synergies within 12 months of closing.

Now what

Exar CEO Ryan Benton believes that the combination will benefit both its customers and employees: "MaxLinear's commitment to and its proven track record of providing its customers with innovative and differentiated high performance analog, mixed-signal and RF technology will present exciting new opportunities for our employees, customers and supply chain."

A tender offer will commence within the next 20 business days, with 20% of Exar shares already in support of the deal. The companies anticipate the deal to close during the second quarter of 2017.

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