Qualcomm to Buy U.K. Chipmaker CSR in $2.5 Billion Deal

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Bluetooth Speaker
A bluetooth speaker in the shape of a skull, designed by Jean-Michel Jarre, sits on display on the CSR Plc stand at the Mobile World Congress in Barcelona,. CSR, a pioneer in Bluetooth wireless technology, is benefiting as more gadgets connect to each other to exchange information. Photographer: Simon Dawson/Bloomberg

Qualcomm Inc. agreed to buy U.K. chipmaker CSR Plc for 1.56 billion pounds ($2.5 billion) to expand in technology for connected appliances, two months after CSR rejected a bid from Microchip Technology Inc.

Qualcomm, the biggest maker of mobile-phone chips, will pay 900 pence a share, about 37 percent more than yesterday’s close, CSR said. The shares traded at 852 pence as of 3:19 p.m. in London. The deal, recommended by CSR directors, values the Cambridge, England-based company at about 19 times projected earnings, compared with 16.7 times paid for chipmakers over the past 12 months, according to data compiled by Bloomberg.

Qualcomm has been building up its business for the so-called Internet of things and the CSR acquisition is a sign that the semiconductor industry is becoming more focused on making chips for devices such as connected cars and thermostats that can be controlled from a mobile phone, Lee Simpson, an analyst for Jefferies, said in a note today.

“Clearly they have gone down the ‘buy’ rather than ‘make’ route,” Simpson said. “This does appear to fit in with their recent strategic moves.”

In July, Qualcomm bought Wilocity Ltd., which makes Wi-Fi products that can be used in home Internet routers and appliances that connect to the Web. San Diego-based Qualcomm has also developed the AllJoyn platform, an open-source project that helps connected devices work together.

Bluetooth Pioneer

CSR, a pioneer in Bluetooth wireless technology, is benefiting as more gadgets connect to each other to exchange information. Its technology has made it an attractive target as chipmakers rush to take advantage of technology that will connect cities, homes and appliances. That market for the Internet of things may rise to $7.1 trillion by 2020 from $1.9 trillion in 2013, researcher IDC has said.

CSR began focusing on connected devices about five years ago when its business was closely tied to smartphones and Nokia Oyj’s handsets, and revenue began to decline. Since then, it has worked on technology that connects devices to smartphones and the Web, such as its products that go in cars’ entertainment systems and music players, Chief Executive Officer Joep van Beurden said in an interview.

“You can see the strategic complement between Qualcomm and CSR -- they are the global leaders in silicon for smartphones,” Van Beurden said. He said he’ll stay at the company at least until the deal closes next year.

Earnings Boost

Qualcomm shares rose 0.5 percent to $72.24 at 10:19 a.m. in New York.

The acquisition is expected to be completed by the end of summer 2015. It will add to earnings per share in fiscal 2016, the first full year after the companies combine, Qualcomm said.

“It’s a good price, but I’m slightly surprised it’s Qualcomm,” said Eoin Lambe, an analyst at Liberum Capital in London. “There’s a lot of technology overlap between the two companies.”

Microchip Technology, based in Chandler, Arizona, said in August it had held preliminary discussions about a possible acquisition of CSR. CSR rejected the approach without saying what it was offered.

Dealmaking in the semiconductor industry has picked up this year, with Infineon Technologies AG agreeing in August to buy International Rectifier Corp. for about $3 billion.

CSR itself has been looking for smaller acquisitions to boost its prowess in mapping, voice recognition and other areas. The company sold its wireless unit to Samsung Electronics Co. in 2012 for $310 million.

Deutsche Bank AG advised Qualcomm on the transaction, while JPMorgan Chase & Co. and Goldman Sachs Group Inc. worked with CSR.

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