Deals

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Now here's something you don't see that often: a takeover target with several "sell" recommendations.

Mixed on Linear
Analysts have been in disagreement over Linear Technology. And the takeover offer it got from Analog Devices is worth 30 percent more than their average target price.
Source: Bloomberg

The chart you're looking at above is for Linear Technology, a manufacturer of analog integrated circuits. On Tuesday afternoon, my Bloomberg News colleagues broke the news that Linear was in advanced talks to sell itself to Analog Devices, a deal which the companies formally announced shortly thereafter. Analog has agreed to pay $46 in cash and 0.2321 of its own shares for each Linear share, which equates to a total offer of about $60 apiece, or $14.8 billion. (Linear also has a $1.4 billion net cash position, which shrinks the perceived deal size.)

Linear shareholders should be pretty pleased with that price, given that not a single analyst tracked by Bloomberg had a 12-month price estimate in that ballpark. The average target price was about 24 percent less than Analog's offer. And if you're wondering whether Analog's stock would be appealing, it had risen about 9 percent this year, which modestly outperformed the S&P 500 and a basket of technology stocks within the index.

The transaction values Linear at about 19 times its trailing 12-month Ebitda. That's notable because just six months ago Analog Devices was said to have backed off its pursuit of Maxim Integrated, one of Linear's peers, after quibbling over the price. At the time, Maxim had a similar Ebitda multiple and market capitalization. (Maxim and other semiconductor companies rallied Tuesday on news of the Linear acquisition.)

Chip Craze
Analog Devices' deal for Linear Technology is just the latest. Broadcom says it's looking at more deals, and often-speculated targets Maxim Integrated and Skyworks Solutions are among those still out there.
Source: Bloomberg

However, Linear does have one big selling point: huge margins. It converts close to half its sales into operating profit, topping even companies such as ARM Holdings, the British chip designer that's being sold to Japan's SoftBank for about $30 billion. 

Profit Appeal
Linear Technology's margins top most other companies in the semiconductor sector.
Source: Bloomberg
Industry average excludes companies with market caps less than $5 billion.

While not the flashiest of industries, the fragmented chip market has been in mega-consolidation mode for over a year. This probably won't be the last big transaction we see. 

--With assistance from Brooke Sutherland.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net