Shares of DTS, Inc. (NASDAQ:DTSI) have popped today, up 23% as of 11:15 a.m. EDT, after Tessera Technologies (NASDAQ:XPER) announced that it would acquire DTS in an all-cash deal valued at $850 million. The acquisition price is $42.50, representing a 28% premium compared to DTS' 30-day volume-weighted average price as of yesterday.
Originally specializing in semiconductor packaging, Tessera's core business has evolved and is now focused on developing and licensing intellectual property for a wide range of end markets, including mobile computing, automotive, and biometrics, among others. By acquiring DTS, Tessera will get its hands on a very valuable portfolio of audio technologies that can build upon its business. It's a highly complementary deal, as audio technologies go well with the imaging technologies that Tessera already licenses.
The combined company is expected to generate around $450 million in revenue this year, of which half will be related to product licensing. The deal is expected to be immediately accretive to earnings per share and free cash flow, and cost-saving synergies are estimated at $15 million within the first 12 to 18 months. There will also be revenue synergies from expanding markets and cross-selling opportunities. Tessera will fund the deal mostly with $600 million of debt financing, with the rest coming from cash on hand.