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Tessera Closes DTS Buyout, Aims to Spread in Audio Solutions

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Tessera Technologies Inc. has completed the buyout of DTS Inc. (DTSI), a leading audio solutions provider for $850 million.

Tessera and DTS are now under Tessera Holding Corporation and shares of the combined company will continue to trade on the Nasdaq under TSRA. The combined entity will have a new corporate name, brand and logo in the first quarter of 2017.

Shares of Tessera have been steadily treading higher on a year-to-date basis. The stock has returned 30.96% compared with the Zacks Electronic Manufacturing industry’s gain of 20.71%.

 

Benefits of the Acquisition

Tessera expects the deal to be immediately accretive to its earnings per share and free cash flow. It is also expected that the combined entity will realize $15 million in annualized cost synergies within 12 to 18 months of the close of transaction.

Revenue synergies are expected to be achieved once the combined company reaches an optimum level of customer channel and technology utilization, and penetrates its addressable markets.

The combined company will try to maintain an optimum level of free cash flow available for funding quarterly dividends, pay debts, make investments and finance future acquisitions.

Emergence of a Stronger Entity Following the Merger

The acquisition will make Tessera one of the leading product and technology licensing companies globally. Tessera expects the combined company to generate pro forma revenues of around $450 million in 2016, half of which will come from product licensing.

We believe that the acquisition will help Tessera fully leverage DTS’ capabilities to develop next-generation imaging, audio and semiconductor packaging technologies and thereby strengthen its position in the end markets.

TESSERA HLDG CP Price and Consensus

 

TESSERA HLDG CP Price and Consensus | TESSERA HLDG CP Quote

Currently, Tessera has a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Cognex Corporation (CGNX - Free Report) , Itron, Inc. (ITRI - Free Report) and Teradyne Inc.  (TER - Free Report) with a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cognex Corporation delivered a positive earnings surprise of 24.92% in the trailing four quarters.

Itron, Inc. delivered a positive earnings surprise of 30.55%, on average, in the trailing four quarters.

Teradyne Inc. delivered a positive earnings surprise of 19.26% in the trailing four quarters.

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