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The reeds give
way to the
wind and give
the wind away
-- A.R. Ammons, 1970
Thus did mid-cap chip maker National Semiconductor (NYSE: NSM ) give way to the advances of much larger rival Texas Instruments (NYSE: TXN ) , perhaps giving away the direction of the prevailing semiconductor winds.
TI intends to pay $25 per National share in an all-cash deal, hoping to wrap things up by the end of the year. To do so, TI needs to take on debt for the first time since 2005, because its bank account isn't stacked enough to cover the $6.5 billion price tag. National comes with a smallish net debt, so this is nothing like buying a wallet stuffed with high-currency bills.
The deal will rebalance TI's product portfolio to create a mostly-analog chip champ. It's a natural fit for both companies, and the regulatory review should be painless, thanks to the fragmented nature of the analog semiconductor market.
That's where the market winds come in: This industry is ripe for consolidation, and TI's deal may very well kick off a sweeping wave of buyouts and mergers.
Shares of analog expert Intersil (Nasdaq: ISIL ) jumped more than 13% on the TI-National deal. It's a logical buyout target in this market, alongside fellow high-performance analog designers Linear Technology (Nasdaq: LLTC ) and ON Semiconductor (Nasdaq: ONNN ) . Like National Semiconductor, these three players have both above-average margins and stiff revenue growth.
The ready availability of alternative buyouts makes a bidding war for National unlikely. That doesn't mean there's any shortage of potential buyers: TI will need to take a financial breather after a deal this large, but Qualcomm (Nasdaq: QCOM ) could aim to increase its power management expertise, and Analog Devices (NYSE: ADI ) can easily afford a smaller deal such as Intersil.
The reed that gives way also leads the way. Let the consolidation begin!
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