It has been widely reported that Intel (NASDAQ:INTC) recently made a bid to snap up well-known FPGA maker Altera (NASDAQ: ALTR). Given that Intel has talked about offering customized versions of its Xeon processors with FPGAs on-package to significantly accelerate certain workloads, it might make sense for Intel to bring an FPGA company in-house.
I previously speculated that if Intel really wanted to get into FPGAs, it could buy one of the smaller FPGA vendors with which it had previously inked manufacturing deals and go at it alone.
However, during Altera's most recent earnings call, CEO John Daane pointed out that as part of its foundry agreement with Intel, the chipmaker pledged to not build its own competing product lines or buy a rival to Altera.
Does this leave Intel with no choice but to buy Altera if it wants FPGAs in-house?
Digging into the agreement itself
Here's the relevant snippet from the Intel/Altera contract that the companies made public:
Intel agrees that it will not produce or sell Intel-branded Standalone PLDs (as defined below), nor invest in or acquire any companies whose principal business is the sale of programmable logic devices ("PLD Companies"), for a [*****] of the Agreement or until [*****], whichever is earlier.
The specific dates and conditions of this portion of the agreement have been redacted. According to the contract, the agreement between Altera and Intel will "remain in effect for four (4) years from the Effective Date." The effective date, in this case, is listed as "to be determined" but "before first production shipments," which I believe will be sometime next year.
This foundry agreements seemingly means it might be years before Intel could buy a non-Altera FPGA vendor.
Is this why Altera reportedly wants big bucks?
According to Reuters, Intel originally "discussed offering $58 per share for Altera, based on publicly available information at the time." However, Reuters reported, following due diligence based on nonpublic information, Intel lowered its bid to just $54. Altera is said to have rejected this offer "following months of negotiations."
If this is true, then it's clear Intel emphatically wants to bring FPGA capabilities into the company. Did Altera think it could get its reported original $58 per share asking price -- a roughly 68% premium to where the stock traded before the reports -- because Intel's hands were tied?
Will Intel launch a hostile bid?
Reuters also reported that the two companies signed a standstill agreement that prevents Intel from making a "hostile bid" on Altera. This agreement, per Reuters, expires on June 1, meaning Intel would have "the option to launch a hostile bid after that."
It will be interesting to see if Intel actually makes a public offer of $54 per share to Altera's stockholders. Although I'm not an Altera shareholder myself, I would find it very difficult to reject $54 per share for a stock that currently trades for about $45 -- and that's after the potential Intel/Altera hookup leaked.
We'll see come early June whether Intel will continue to try to get its hands on Altera.