Why Spreadtrum Shares Surged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of smartphone chip maker Spreadtrum Communications (NASDAQ: SPRD  ) popped 13% today after Chinese state-owned company Tsinghua Unigroup agreed to acquire it for about $1.8 billion.

So what: The all-cash deal values Spreadtrum at $31 per American depository receipt and represents a premium of 17% to its closing price on Thursday. Of course, the offer is also a 9% bump from the preliminary bid of $28.50 that Tsinghua made last month, suggesting that Tsinghua is pretty confident in the smartphone tailwinds working in Spreadtrum's favor.

Now what: While the buyout still needs approval from shareholders and other regulatory bodies, Spreadtrum management is optimistic that the deal will go through. "The acquisition by Tsinghua will provide investors with significant returns, and position the Spreadtrum business for continued growth," said Spreadstrum Chairman and CEO Dr. Leo Liyou Li. "In short, we feel this transaction is favorable to Spreadtrum shareholders, and unlocking potential value otherwise hidden in the assets of Spreadtrum." Of course, with Spreadtrum shares likely all popped at this point, close rival Infineon Technologies might be an alternative smartphone play worth considering.

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