Intel share price up, nears $16-billion purchase of Altera

Intel Corp is close to announcing a $16-billion acquisition of programmable-chip maker Altera Corp as early as Monday, people familiar with the matter said on Sunday, which would be the semiconductor industrys third mega deal this year.

Altera shareholders will receive $54 per share, according to the people with knowledge of the talks, a 15% premium over the stocks close on Thursday at $46.97 before news of the possible transaction emerged.

The expected offer price is also 56% higher than the one at which Altera traded before the Wall Street Journal reported negotiations between the two companies on March 27th. Intel launched a $54 per share unsolicited offer in April, which Altera rejected. The two signed a standstill agreement earlier in 2015 that expires on June 1st, allowing Intel to go for a hostile bid after that.

Successfully acquiring Altera would be Intels largest deal, exceeding its $7.7-billion acquisition of McAfee back in 2011. It would come just days after Singapore-based Avago agreed to buy US rival Broadcom for $37 billion in cash and stock, and a couple of months after Netherlands-based NXP agreed to buy Freescale for around $11.8 billion.

Consolidation in the industry comes as semiconductor companies seek new sources of revenue and better negotiation power against clients such as Apple and Samsung that tend to squeeze pricing.

Altera, which has a global workforce of more than 3 000 employees, would help Intel to further diversify from the mature PC sector and bundle its own server chips with Alteras line of programmable chips that are increasingly being used in a range of telecoms and wireless equipment, as well as military hardware, automotive and industrial applications and networking.

“Its a good deal essentially because it sews up Intels data center supremacy even more,” Summit Research analyst Srini Sundararajan said for Reuters.

The two companies have already been partnering, which has been seen as unusual for Intel as it typically doesnt share its technology. Altera develops and designs high-end semiconductors but relies on external manufacturers such as Intel and TSMC for their production as it has no foundry.

Alteras operations are seen as a way for Intel to maintain its dominating position in server systems, which generated more than half of the companys operating profit in the three months through March. Companies have recently been using chips made by Altera and rival Xilinx Inc to speed up their servers, and acquiring Altera would be a step to address that trend. Intel sells more than 90% of the chips used in servers, and although most of its revenue comes from the personal computer segment, the Xeon server chips are much more profitable.

Altera Corp settled 4.00% higher on Friday on the NASDAQ at $48.85 per share, and was up another 5.73% by 09:27 GMT in pre-market trading on Monday at $51.65.

Intel Corp closed 1.32% higher on Friday at $34.46 a share, marking a one-year jump of 27.82% and valuing the chipmaker at $163.48 billion. According to CNN Money, the 40 analysts offering 12-month price forecasts for Intel Corp have a median target of $36.00, with a high estimate of $48.00 and a low estimate of $23.00. The median estimate represents a +4.47% increase from the last price of $34.46.