Intel seals its largest acquisition with $16.7bn deal for Altera

Intel concluded the largest deal in its history on Monday as it agreed to acquire Altera, a maker of programmable processors, for $16.7 billion, in the latest in a wave of mergers and acquisitions in the chipmaking sector.

Altera shareholders will receive $54 a share in cash, a premium of about 56 per cent on the company’s price in late March when it first emerged that Intel was in talks to acquire it.

The hefty premium paid by Intel underscores the growing competitiveness among large chipmakers in a rapidly consolidating industry.

Intel's acquisition is the third multibillion-dollar semiconductor deal since March, and comes days after Singapore-based Avago acquired US rival Broadcom for $37 billion in the largest acquisition seen in the technology sector since the late-1990s dotcom bubble. In early March, NXP Semiconductors, the Dutch chipmaker, bought Freescale of the US in a deal that valued the company at $11.8 billion.

Semiconductor groups, which make the chips that power smartphones, are increasingly under pressure to cut costs as they are being squeezed by handset makers such as Apple and Samsung, which command enormous pricing power.

Chipmakers hope that consolidating will allow them to stand up to larger tech groups when negotiating prices. It could also help companies to cut costs by bringing their operations under one roof, and help them grow faster at a time when organic growth remains constrained, analysts say.

Altera, which was founded three decades ago and employs about 3,000 people in 19 countries, will help Intel diversify further from its dependence on the mature PC sector and soak up some of the excess capacity in its chipmaking plants.

"Intel's growth strategy is to expand our core assets into profitable, complementary market segments," said Brian Krzanich, Intel's chief executive. "With this acquisition, we will harness the power of Moore's Law to make the next generation of solutions not just better, but able to do more", referring to the observation by Intel co-founder Gordon Moore that the processing power of chips doubles about every two years.

Altera makes chips used in a range of telecoms and wireless equipment as well as military hardware, automotive and industrial applications and networking. Huawei of China and Sweden's Ericsson are among its largest clients.

Mr Krzanich has in recent years stressed his commitment to focus on manufacturing and the deal with San Jose-based Altera seems to complement such strategy. Intel already makes some of the company’s products as the company focuses more on designing chips rather than manufacturing them.

Altera’s shares rose 6 per cent to $51.80 on Monday morning in the first few minutes of trading as the market reacted positively to a deal. Intel’s shares were broadly flat.

Intel received financial advice from JPMorgan and Rothschild and legal advice from Gibson, Dunn & Crutcher and Weil, Gotshal & Manges.

Goldman Sachs acted as the sole financial adviser to Altera, and Wilson Sonsini Goodrich & Rosati provided legal advice.

Copyright The Financial Times Limited 2015