Shares of semiconductor provider IXYS Corp. (NASDAQ:IXYS) soared on Monday after circuit protection company Littelfuse (NASDAQ:LFUS) announced that it was acquiring the company in a cash and stock deal. The transaction is valued at $655 million after backing out the net cash on IXYS's balance sheet, and it's expected to be immediately accretive to Littelfuse's bottom line. IXYS stock was up 36.5% at 10:45 a.m. EDT, while shares of Littelfuse were down 5%.
Littelfuse is paying a little more than twice sales for IXYS, which generated revenue of $322 million in fiscal 2017. IXYS shareholders will be entitled, per IXYS share, to either $23 in cash or 0.1265 of a share of Littelfuse stock, with each option accounting for 50% of IXYS stock. Littefuse will fund the cash portion of the deal with a combination of existing cash and additional debt.
The combined company will have annual revenue of roughly $1.5 billion. Littelfuse pointed to a host of benefits that it expects to realize from the deal, including a broader technology platform in the industrial and electronics markets, increased penetration in the automotive market, and an increased presence in the semiconductor industry.
Littelfuse expects the deal to be immediately accreted to its adjusted EPS and free cash flow, excluding one-time costs related to the acquisition. The company didn't provide hard numbers or estimates, but it did say that it expects to realize more than $30 million of annualized cost savings within the first two years following the close of the transaction.
The acquisition is expected to close during the first calendar quarter of 2018. IXYS founder and largest shareholder Nathan Zommer, Ph.D., will vote his 21% stake in favor of the deal, and upon its completion, Zommer will join Littelfuse's board of directors.
The acquisition will boost Littelfuse's annual revenue by more than 25%. The company is paying a high price, about twice sales and 31 times earnings, especially considering that IXYS has reported largely flat revenue for the past decade. The deal price represents an all-time high for IXYS stock, giving shareholders a nice return. Whether it will work out as well for Littelfuse investors remains to be seen.