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Intel to buy Altera for $16.7 billion in its biggest deal ever

Time: 2016-07-25 Source:

By Lehar Maan and Liana B. Baker

Intel Corp (INTC.O) agreed to buy Altera Corp ALTR.O for $16.7 billion as the world's biggest chipmaker seeks to make up for slowing demand from the PC industry by expanding its line-up of higher-margin chips used in data centers.

By combining with Altera, Intel will be able to bundle its processing chips with the smaller company's programmable chips, which are used, among other things, to speed up Web-searches.

Intel said on Monday it would offer $54 per share for San Jose, California-based Altera, a 10.5 percent premium to Altera's close on Friday.

Altera's shares were changing hands at $51.78, well below the offer price, in afternoon trading.

That suggested that some investors felt the deal could face regulatory hurdles, but analysts said there was virtually no overlap of products between the companies.

Intel's shares were down about 1.7 percent at $33.86.

The deal valued Altera at about 9 times forward revenue, according to Thomson Reuters data.

"It seems very high to me," Stifel, Nicolaus & Co analyst Kevin Cassidy told Reuters. "The last one I remember that was close was Broadcom buying NetLogic at 8 times forward revenues, and that didn't turn out very well for Broadcom."

The deal price is unchanged from Intel's unsolicited offer that sources had said Altera rejected in April.

The integration of Altera's chips with Intel's will create a new class of products giving customers a significant improvement in performance, lower costs and a lot more flexibility, Intel Chief Financial Officer Stacy Smith told Reuters. "That’s the piece that's pretty exciting about it," he said.

Intel looked at other targets, but Altera was the best bet to create value for the shareholders, Smith said.