=DJ UPDATE:LSI Could See Small Chance Of Another Agere Suitor
By Donna Fuscaldo Of DOW JONES NEWSWIRES LSI Logic Corp. (LSI) may have to fend off other suitors to see its acquisition of Agere Systems Inc. (AGR) go through.
While nobody is placing high odds on other suitors trying to disrupt the $4 billion deal, analysts did say buying Agere could make sense for companies including Marvell Technology Group Ltd. (MRVL) and Broadcom Corp. (BRMC). One thing most industry watchers do agree on, is a buyout of Agere won't be the last deal in the semiconductor market.
"There will be more M&A," said Aalok Shah, an analyst at D.A. Davidson. "This deal has proven bigger is always better."
Earlier Monday, Milipitas, Calif.-based LSI announced a deal to buy Allentown, Pa.-based Agere. Under terms of the deal, Agere shareholders would receive 2.16 shares of LSI for each share of Agere they own. The offer is valued at $22.81 a share, or a 28.2% premium to Friday's closing price.
News of the deal sent shares of LSI Logic down 12%, or $1.28, to $9.28 on heavy volume of 16.2 million shares. Meanwhile shares of Agere were recently up 10%, or $1.81, to $19.60 on volume of 11.3 million shares. Average daily volume is 1.4 million shares.
Given the fact that Agere derives a lot of its business from the storage market, storage competitor Marvell may want to stop Agere, with LSI, from becoming bigger, said Shebly Seyrafi, an analyst at Caris & Company.
Still, while Seyrafi said there's a slight chance Marvell may want Agere, he said the company is dealing with a stock option grant inquiry and recently acquired a unit of Intel Corp. (INTC), making an acquisition of Agere difficult. "Marvell may not be in the mood to make a move like this," said Seyrafi, noting that on the wireless chip side Broadcom may want Agere's business. Officials at Broadcom and Marvell weren't immediately available to comment.
In an interview with Dow Jones Newswires Monday, LSI Chief Executive Abhi Talwaker dismissed the likelihood of another suitor trying to disrupt its deal. According to Talwaker, LSI and Agere spent a "considerable amount of time" on the acquisition, which he said has the support of both boards. Talwaker said he expects the deal to close in the first quarter of 2007. As for more acquisitions, Talwaker said the company has a "strong balance sheet" and uses acquisitions as "purely an implementation tool." The executive noted LSI is focused on making sure the acquisition of Agere is integrated well.
James Poyner, an analyst at Hapoalim Securities USA, who raised his rating on shares of LSI to outperform Monday on the acquisition of Agere, also thinks the chance of another suitor stepping up is slim. According to Poyner, while Marvell is the most likely candidate, there's been speculation that Marvell itself could be bought out.
Poyner noted that LSI made a "reasonable" offer given Agere isn't expected to have much revenue growth in 2007. Poyner did say a combined LSI and Agere could move to sell LSI's consumer electronics chip business next year.
Agere is just the most recent semiconductor company to be bought out. Last week it was disclosed that private equity firm Carlyle Group was in talks to buy Advanced Semiconductor Engineering Inc. (ASX), the Taiwan maker of chip equipment. Carlyle was also part of a group that acquired Freescale Semiconductor for $17.6 billion. Speculation has been swirling over which company will be next to be bought out in the semiconductor industry. On the chip equipment side, analysts have cited Novellus Systems Inc. (NVLS), which is hosting a midquarter update call later Monday.
As for chip companies, D.A. Davidson's Shah said any chip company that has a lot of cash on its balance sheet could be a target. He points to Genesis Microchip Inc. (GNSS), the Alviso, Calif.- chip company, as a potential target. Shah owns shares of Agere.
Other potential targets include Taiwan chip foundry UMC (2303.TW) and San Jose-based Atmel Corp. (ATML), noted ThinkEquity analyst Eric Ross. He said one potential target, that companies probably don't have the guts to buy, is Sunnyvale, Calif.-based Advanced Micro Devices Inc. (AMD). "AMD would be an unbelievable acquisition target for someone big," said Ross. "I don't see it happening because nobody wants to fight Intel."
Officials at AMD weren't immediately available to comment. -
By Donna Fuscaldo; Dow Jones Newswires; 704-371-4263; donna.fuscaldo@dowjones.com |
