With less than two weeks before its third-quarter fiscal 2016 earnings release, the U.S.-based semiconductor firm Microchip Technology Inc. (MCHP - Free Report) has come up with two headlines that will likely receive heavy investor scrutiny. These include the company’s announcement of offering a sneak peek into its third-quarter fiscal 2015 results and the materialization of the Atmel Corporation buyout.
Q3 Preliminary Results
Overall, Microchip’s preliminary third-quarter 2015 results can be described as largely satisfactory, in view of the ongoing macroeconomic turmoil across the globe. The company expects non-GAAP net sales of $552 million (compared with the earlier expectation of $539.7–$563.5 million) and earnings per share of 62–63 cents, (previously predicted in a range of 58–64 cents), both of which come above the midpoint of the guidance provided in Nov 2015.
The expected EPS and sales figures may offer some respite to investors who had enough reasons to worry given the exchange rate volatility and sluggishness of customer spending amid a challenging global economic scenario.
Based on the resiliency of its business model, in an otherwise distressful global economic environment, Microchip also inked a definitive agreement to acquire touchscreen chipmaker Atmel for $8.15 per share, comprising $7.00 per share in cash and $1.15 per share in Microchip stock. This equates to a total equity value of about $3.56 billion and total enterprise value of about $3.40 billion. However, Atmel’s cash and investments, net of debt of approximately $155.0 million exiting the fourth quarter ended Dec 31, 2015, have been excluded from the acquisition price.
The buyout will be funded through a combination of cash and common stock. Also, to facilitate the transaction, Microchip’s directors have simultaneously authorized an increase in the existing share repurchase program to 15.0 million shares from approximately 11.4 million shares remaining under the prior authorization. The acquisition, expected to close in the second quarter of calendar year 2016, is subject to customary closing conditions and approval from Atmel’s shareholders, as Microchip's stockholders has already given their assent.
This acquisition also brings a lot to the table for Atmel shareholders as it is clearly superlative to the proposal of Dialog Semiconductor PLC, which had also shown interest in buying Atmel. Shareholders of Atmel will receive greater cash consideration per share, along with inherent benefit of upside potential associated with ownership of Microchip stocks.
Apart from the impressive preliminary results which hint at the company’s resiliency, this acquisition, on Microchip’s part, reflects its ongoing consolidation strategy. Under the latter, the firm has a pipeline of acquisitions to multiply its organic revenue growth by twofold. The company expects Atmel buyout to supplement its operational excellence and customer base. Microchip believes the acquisition of Atmel will aid the launch of cutting-edge competitive products, going forward; thereby helping it grab a higher market share.
Microchip also revealed that the Atmel buyout will be immediately accretive to its non-GAAP earnings per share. Earlier, the company had acquired 83.5% of ISSC Technologies Corporation, a low power Bluetooth and advanced wireless solutions provider for the Internet of Things, to supplement its presence in these niche markets. Amid the present market scenario, the company expects to achieve $170 million in synergies from cost-savings and incremental revenue growth by fiscal year 2019.
Microchip currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include M/A-Com Technology Solutions Holdings, Inc. (MTSI - Free Report) and MaxLinear, Inc. (MXL - Free Report) . Both these stocks hold a Zacks Rank #2 (Buy).
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