ARM and Imagination Technologies Buy MIPS Technologies

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LONDON -- ARM (LSE: ARM.L  ) (Nasdaq: ARMH  ) jumped 32 pence to 727 pence, while Imagination Technologies (LSE: IMG.L  ) added 5 pence to 470 pence, after the two companies announced a deal this morning to acquire MIPS Technologies (Nasdaq: MIPS  ) .

In a complex deal, ARM is set to pay $168 million and lead a consortium to purchase 498 patent and patent applications owned by MIPS. Other companies in the consortium are affiliated to the Allied Security Trust, whose members include Hewlett-Packard, IBM, and Intel and which will contribute $182 million toward the acquisition.

In a separate transaction, Imagination is to pay $60 million to acquire the operating business of MIPS, as well as 82 of the group's patents. Imagination will also receive a perpetual, royalty-free license to use the patents acquired by the ARM consortium.

MIPS pioneered the modern 32-bit and 64-bit RISC CPU architecture. A share price that has essentially trod water for 10 years prompted speculation that a "patent troll" could acquire the business and embark on litigation claims against competitors.

Warren East, chief executive of ARM, admitted today:

ARM is a leading participant in this consortium which presents an opportunity for companies to neutralise any potential infringement risk from these patents in the further development of advanced embedded technology. Litigation is expensive and time-consuming and, in this case, a collective approach with other major industry players was the best way to remove that risk.

Meanwhile, Imagination CEO Hossein Yassaie said: "MIPS is the company that pioneered the RISC CPU architecture and created an iconic and widely respected technology. ... I believe that the combination of our existing Meta CPU technologies and activities with MIPS's capabilities will help us to create a new force to be reckoned with in the CPU IP market."

Today's news and positive investor reaction have extended the wonderful long-term gains delivered by the shares of ARM and Imagination.

About four years ago, ARM shares languished at 79 pence, while those of Imagination had fallen to 32 pence. Since then, the price of ARM has surged more than eightfold, while the price of Imagination has rocketed an amazing 13-fold. Certainly the microchip industry can be home to enormously wealth-changing investments.

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Maynard does not own any share mentioned in this article. The Motley Fool owns shares of International Business Machines, Imagination Technologies Group, and Intel. Motley Fool newsletter services have recommended buying shares of Intel. Motley Fool newsletter services have recommended creating a synthetic long position in International Business Machines. Motley Fool newsletter services have recommended writing puts on Intel. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Read/Post Comments (2) | Recommend This Article (1)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 06, 2012, at 11:13 AM, 4ron1 wrote:

    What is the source for how much Arm contributed to AST's acquisition?

  • Report this Comment On March 05, 2013, at 5:14 PM, ibankingcrooks wrote:

    Brilliant play by IMG, and completely unnoticed by the Street. This basically just gave Imagination the third most prevalent microprocessor architecture in the consumer and embedded world, as well as all those patents. For a mere $62 mil.

    Wow... Look out for IMG to be a huge player in the embedded and microcontroller market, well beyond GPUs. It will take them a few years but it will happen.

    Also, great to see the patents go to real value creators, not the Trolls.

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