Shares of this chipmaker are in the spotlight on Thursday after the company announced that it had entered into a definitive agreement to be acquired in a cash and stock transaction that values the combined company at $8B. Saying the announcement is "not much of a surprise," Roth Capital analyst Anthony Stoss told investors he believes Silicon Motion (SIMO) is an attractive target for "several suitors" and that the news "could potentially ignite a bidding war." Also commenting on the deal, his peer at Wedbush told investors that he sees an "attractive opportunity" in Silicon Motion given a significant discount between its valuation and the proposed transaction price, and some potential for another bidder.
MAXLINEAR DEAL: MaxLinear (MXL) and Silicon Motion announced that they have entered into a definitive agreement under which MaxLinear will acquire Silicon Motion in a cash and stock transaction that values the combined company at $8B in enterprise value. In the merger, each American Depositary Share, or ADS, of Silicon Motion, which represents four ordinary shares of Silicon Motion, will receive $93.54 in cash and 0.388 shares of MaxLinear common stock, for total per ADS consideration of $114.34. Combined revenues are expected to be more than $2B annually and are supported by the technology breadth to address a total market opportunity of roughly $15B. The transaction is expected to generate annual run-rate synergies of at least $100M to be realized within 18 months after the transaction closes and is expected to be immediately and materially accretive to MaxLinear's non-GAAP earnings per share and cash flow.
Silicon Motion also reported first quarter non-GAAP earnings per share of $1.72 and revenue of $241.98M, with consensus at $1.53 and $235.92M, respectively.
MOVING TO THE SIDELINES: Roth Capital analyst Suji Desilva downgraded Silicon Motion to Neutral from Buy with a price target of $110, down from $120, following the announcement of its planned acquisition by MaxLinear. Desilva expects MaxLinear to benefit by incorporating Silicon Motion's infrastructure storage capability given the latter's solid storage controller and interconnect capability. Needham analyst Rajvindra Gill and Susquehanna analyst Mehdi Hosseini also downgraded Silicon Motion to Hold-equivalent ratings after the news.
'BIDDING WAR': After MaxLinear announced the deal to acquire Silicon Motion in a cash and stock transaction valued at $114.34 per ADS, Craig-Hallum analyst Anthony Stoss said the announcement "is not much of a surprise" given that potential takeout rumors have recently been circulated. He views Silicon Motion as an attractive target for "several suitors" and believes the announcement "could potentially ignite a bidding war" that "could ultimately drive the takeout price closer to $120 plus." Breakup fees are not overly aggressive either, which could make follow-on bids from other interested parties a higher likelihood, he contended. Stoss reiterated a Buy rating and $120 price target on Silicon Motion shares given what he sees as the potential for a higher bid.
Meanwhile, Wedbush analyst Matthew Bryson said that while a deal to be acquired by MaxLinear has been announced, he sees an "attractive opportunity" in Silicon Motion given a significant discount between its valuation, and the proposed transaction price and some potential for another bidder as still creating attractive upside potential for the stock. The analyst likes Silicon Motion and believes the purchase price was fair, but struggles with some of the synergy goals and opportunities laid out by MaxLinear management. Bryson believes the deal has minimal regulatory risk and continues to see positive momentum for Silicon Motion. He has an Outperform rating and a price target of $115 on Silicon's shares.
PRICE ACTION: In Thursday afternoon trading, shares of Silicon Motion have jumped almost 17% to $94.77, while MaxLinear's stock has dropped about 22% to $41.80.