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Analog Devices Enters Into Term Loan Facility, Amends Credit

LLTC ADI MEET

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Analog Devices Inc. (ADI - Free Report) recently entered into a new unsecured term loan facility that will help it to raise a total amount of 5.0 billion.

The facility consists of a $2.5 billion term loan with a 3-year maturity and another $2.5 billion term loan with a 5-year maturity.

Per the company, the new term loan will have an interest rate based on the London Interbank Offered Rate (“LIBOR”) but will vary depending on the company’s debt ratings. Based on its current debt ratings, Analog Devices expects the effective interest rate of the term loans to be approximately 2%.

The company aims to use the funds raised from the offering to partially fund the proposed acquisition of Linear Technology Corporation (LLTC - Free Report) . In July, Analog Devices agreed to acquire Linear in a cash and stock deal worth $14.8 billion. Per the agreement, Linear shareholders will receive $46.00 in cash for each share and an additional 0.2321 of Analog Devices common stock for each Linear share.

As a result, the borrowings under the term loan facility will depend on the closing of the proposed acquisition.

Simultaneously, Analog Devices announced that it is expanding its revolving credit facility. This move is likely to further boost the company’s liquidity strength.

Notably, the borrowing capacity under this facility has been expanded by $250 million to $1 billion. However, the revolving credit facility will expire on July 10, 2020 and is currently undrawn.

Analog Devices is a leading supplier of analog and DSP integrated circuits. The company aims to maintain a healthy balance sheet which will enable it to implement its growth strategies. This will also reinforce Analog Devices’ M&A discipline, encourage shareholder cash return commitments and lower its cost of borrowing.

In the recently concluded third-quarter fiscal 2016, the company spent $129 million cash to pay dividends and repurchase$23 million worth shares.

Exiting the quarter, Analog Devices had cash and short-term investments of approximately $3.80 billion, up from $3.75 billion in the prior quarter. Long-term debt was approximately $1.7 billion, resulting in a net cash position of $2.07 billion.

Bottom Line

The acquisition of Linear Technology will make Analog Devices an industry leader across a wide range of products, customer breadth and scale. The company expects to achieve annualized cost synergies of $150 million within the first 18 months after completion of the transaction.

The deal will expand Analog Devices’ total addressable market to $14 billion from $8 billion, allowing it to tap the phenomenal demand in some of the most attractive markets, namely industrial, automotive, and communications infrastructure markets.

In August, Analog also snapped up the Cyber Security Solutions unit of Sypris Electronics LLC for $42 million. This acquisition is expected to enhance Analog Devices’ position in secure radio communications that are widely used in the aerospace and defense sectors.

The company is also investing in the healthcare sector. It is working with research institutions and system OEMs to improve performance and affordability of medical electronic devices with major focus on clinical-grade vital signs monitoring and care-imaging applications.

In addition, extensive buybacks and encouraging dividends should keep investor interest alive in the stock.

Zacks Rank

Currently, Analog Devices carries a Zacks Rank #3 (Hold). Stocks worth considering in the industry include LinkedIn Corporation and MeetMe Inc. (MEET - Free Report) .

LinkedIn witnessed a 0.13% rise in its last day’s stock price. On average, the company delivered a positive earnings surprise of 115.2% in the trailing four quarters. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

MeetMe, Inc. carriesa  Zacks Rank #2 (Buy) and witnessed a 1.14% gain in its last day’s stock price. On average, the company delivered a positive earnings surprise 53.6% in the trailing four quarters.

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