Intel has agreed to buy Altera for $16.7 billion, as the world's biggest chipmaker seeks to make up for slowing demand from the PC industry by expanding its line-up of higher-margin chips used in data centres.
By combining with Altera, Intel will be able to bundle its processing chips with the smaller company's programmable chips, which are used, among other things, to speed up Web searches.
Intel said yesterday it would offer $54 per share for San Jose, California-based Altera, a 10.5% premium to Altera's close on Friday.
Altera's shares were changing hands at $51.78, well below the offer price, in afternoon trading.
This suggested some investors felt the deal could face regulatory hurdles, but analysts said there was virtually no overlap of products between the companies.
Intel's shares were down about 1.7% at $33.86, while the deal valued Altera at about nine times forward revenue, according to Thomson Reuters data.
"It seems very high to me," said Stifel, Nicolaus & Co analyst Kevin Cassidy. "The last one I remember that was close was Broadcom buying NetLogic at eight times forward revenues, and that didn't turn out very well for Broadcom."
The deal price is unchanged from Intel's unsolicited offer that sources had said Altera rejected in April.
The integration of Altera's chips with Intel's will create a new class of products giving customers a significant improvement in performance, lower costs and a lot more flexibility, said Intel CFO Stacy Smith. "That's the piece that's pretty exciting about it," he said.
Intel looked at other targets, but Altera was the best bet to create value for the shareholders, Smith said.
The transaction is the third big one in the highly fragmented chip industry this year. In the industry's biggest deal to date, Avago Technologies agreed last week to buy Broadcom for $37 billion.
Altera's programmable chips will allow Intel to increase the computational capability of its Xeon server chips, which could be under attack after the Avago-Broadcom merger, said Summit Research analyst Srinivasan Sundararajan.
NXP Semiconductors NV set off the latest round of deals in March when it agreed to buy Freescale Semiconductor for $12 billion.
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