RF Micro Devices Inc. agreed to buy TriQuint Semiconductor Inc. for $1.59 billion, creating a larger supplier to phone makers such as Apple Inc. to help cut costs and become profitable again.
The transaction, billed as a merger of equals, represents an implied price of $9.73 for each TriQuint share, a 5.4 percent premium over last week’s closing price, the companies said in a statement today. Former shareholders of RF Micro and Hillsboro, Oregon-based TriQuint will each own about 50 percent of the post-merger company, which will have a new name.
RF Micro and TriQuint, which get most of their revenue from components that help mobile phones connect to cellular networks, both posted losses last year. The combination reduces the number of suppliers and is set to boost their profits by making it harder for customers such as Apple and Samsung Electronics Co. to push back on pricing, said Mike Burton, an analyst at Brean Capital LLC.
“This has been something that a lot of people were hoping would happen in the space,” said Burton, who has a hold rating on TriQuint stock and a buy on RF Micro shares. “Pricing becomes a lot more rational.”
Skyworks Solutions Inc. and Avago Technologies Ltd. are the two main rivals of RF Micro and TriQuint, according to Burton. Qualcomm Inc., the largest maker of semiconductors used in mobile phones, has also started offering radio-frequency products as add-ons to its industry-leading modems.
The shares of Greensboro, North Carolina-based RF Micro jumped 21 percent to $7.03 at the close in New York, bringing its gains to 53 percent in a year. TriQuint increased 26 percent to $11.64. It has more than doubled in the past 12 months.
The two companies are combining to boost profit margins by sharing manufacturing, research and development costs and reducing other expenses, including through adjustment of staffing, executives said today on a conference call. Together they predict they will be able to reduce expenses by at least $150 million -- $75 million in the first year after closing and the rest the second year. The new chipmaker will have annual revenue of more than $2 billion.
RF Micro Chief Executive Officer Bob Bruggeworth will serve as CEO, while TriQuint CEO Ralph Quinsey will become non-executive chairman. The new company will have five directors apiece from the TriQuint and RF Micro boards.
Combined, the companies are targeting a gross margin, or the percentage of sales remaining after deducting the cost of production, of 45 percent, Bruggeworth said on the call. RF Micro had gross margin of 37 percent in its most recent quarter, compared with 26 percent at TriQuint.
The two companies make components that tune antennas and filter and amplify signals at the front end of turning radio waves into voice and data for phone users.
After the transaction closes, the companies plan a 1-for-4 reverse stock split, resulting in about 145 million shares outstanding.
Goldman Sachs Group Inc. advised TriQuint on the transaction, while RF Micro used Bank of America Corp.