Intel’s Altera Bid Looks Just as Good This Time Around

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Altera Corp. shareholders knew a good deal when they saw it. It just took the chipmaker’s management and board some time to come around.

Altera on Monday announced a sale to Intel Corp. for $54 a share -- the same price that the company had rebuffed in April.

Investors were bewildered at the company’s decision to initially reject the offer, given that Altera’s stock hadn’t reached $54 on its own in 15 years. Shareholder TIG Advisors started a public campaign to push Altera to reconsider. The firm and Cadian Capital Management were among Altera holders that sent letters to the company, urging them to go back to Intel, people with knowledge of the matter said in April.

Now, the price looks even better after Altera’s first quarter revenue fell short of analysts’ estimates.

“Altera has had some tough times recently,” Abhinav Davuluri, an analyst at Morningstar Inc. in Chicago, said in a phone interview. “We saw back in April how upset shareholders were when the rumors came out that the $54 deal had been declined. They clearly understood that was the best it’s going to get.”

At about $14.3 billion after subtracting net cash, Intel’s offer values Altera at 25 times its earnings before interest, taxes, depreciation and amortization in the last year. That’s about 70 percent higher than the median multiple paid for similar transactions in the last five years, and roughly in line with Avago Technologies Ltd.’s pricey purchase of Broadcom Corp. announced last week.

“This transaction is the outcome that Altera stockholders desired,” Drew Figdor, a fund manager at TIG, said in a statement on Monday. “This is the right deal, at the right time, and at the right price, for both Altera and Intel.”

Tech Records

The Broadcom acquisition, valued at about $37 billion, had already pushed chipmaker dealmaking to a record this year. With the Altera takeover, U.S. technology acquisitions are also at an all-time quarterly high.

American companies across all industries were targeted in a record $215 billion of acquisitions during May, according to data compiled by Bloomberg. That also capped their busiest 12-month period for deals ever at about $1.58 trillion.

While the Altera price tag is expensive, it’s worth it for Intel, said Davuluri of Morningstar.

Combining Intel and Altera’s chips for data centers will help Intel maintain its dominance in the server market amid competition from ARM Holdings Plc, said Woo Jin Ho and Anand Srinivasan of Bloomberg Intelligence. The deal also further diversifies Intel away from the declining PC market and will allow it to make use of its excess production capacity.

The Altera purchase will be 1 percent accretive to Intel’s 2016 earnings per share before accounting for any synergies, according to data compiled by Bloomberg.

“I don’t think it’s as overpriced as one would maybe think initially,” Davuluri of Morningstar said. “They know what they’re getting.”