U.S. semiconductor firm Analog Devices will be acquiring its rival Maxim Integrated in a deal estimated to be worth $21 billion. The Merger of the country's second and third-largest analog semiconductor firms will make the combined company a major player in the global semiconductor sector and a likely key contributor in the race for 5G.
On Monday, Analog Devices announced that it has reached a deal to acquire Maxim Integrated for $21 billion in an all-stock deal. The merger would result in a combined company that would be roughly close to the size and scope of the companies' much larger rival Texas Instruments. The deal, which is expected to be completed sometime in August, would place Analog Devices' market valuation over $68 billion.
Analog Devices, which mainly specializes in signal processing, power management, and data conversion, believes that the merger should drastically improve its ability to develop better cutting-edge solutions for its customers. The company's chief executive officer, Vincent Roche, mentioned in a statement that the deal will effectively combine both companies' technologies and talents, enabling it to developer far more advanced solutions.
The deal comes as demand for semiconductors globally continues to accelerate as more and more chips are finding their way into everyday devices such as cars, appliances, and other smart products. Demand for chips is also expected to drastically surge in the coming years with the increased use of 5G-enabled products or so-called internet of things (IoT) devices.
Analog, which is mostly catering to companies in the communication and digital healthcare industry, plans to greatly expand its business by tapping into Maxim's extensive experience in serving the automotive and data center markets. The acquisition, which is Analog's largest transaction ever, is expected to drastically increase its revenue stream to an estimated $8.2 billion annually.
Synergies and the redundancy removal are expected to result in massive cost savings for the combined company. Analysts estimate that the combined company could realize cost savings of up to $275 million in about 18 months, further bolstering its total earnings. Much of the savings will come from lower operating expenses, lower cost of goods, and other operational optimizations.
Following the announcement of the acquisition, Maxim's stock prices surged by more than 13 percent on Monday. Meanwhile, Analog's stock prices fell by around 6 percent before rebounding 1.7 percent lower on the same day. Under the deal, Maxim shareholders will be getting 0.63 shares for every Maxim stock they own. Once the deal is completed, Maxim shareholders' will own about 31 percent of the combined company.
