What: Shares of Analog Devices (NASDAQ:ADI) and Maxim Integrated Products (NASDAQ:MXIM) climbed 8.8% and 10.4%, respectively, on Wednesday, after Bloomberg reported the two companies are considering whether to merge.
So what: Citing "people with knowledge of the matter," Bloomberg says Analog Devices and Maxim are "in talks about a possible combination that would give them more scale in a consolidating industry."
More specifically, sources told Bloomberg Maxim was working with an unnamed bank on a strategic review -- an unsurprising development considering Maxim's ambitious efforts to reduce costs, transform its manufacturing footprint, and optimize R&D and sales to identify growth opportunities -- when it was approached by Analog Devices about the potential merger.
Analog Devices, for its part, is no stranger to such deals. Last year it completed a roughly $2 billion deal to acquire Hittite Microwave Corporation, to leverage its RF, microwave, and millimeter wave technologies and bring more complete solutions to its industrial and automotive customers. By contrast, the majority of Maxim's revenue comes from chips used in consumer electronic devices.
Now what: While I'm sure together Analog Devices and Maxim could identify compelling synergies and offer customers more comprehensive product solutions, there's no guarantee a merger of this size will come to fruition. Combing that with the uncertainty that Analog Devices' chips are in a certain new iDevice, as well as the fact Maxim has found top-line growth elusive of late, I think investors in both companies would be wise to consider taking at least some of today's quick gains off the table.