While key industry players assembled today (Monday) in Barcelona for the Mobile World Congress, a key mobile chipmaker merger played out on Wall Street.
In a $1.6 billion all-stock deal, Greensboro, N.C.-based RF Micro Devices (Nasdaq: RFMD) agreed to acquire Hillsboro, Ore.-headquartered TriQuint Semiconductor Inc. (Nasdaq: TQNT).
Billed by both chipmakers as a merger of equals, TriQuint and RF Micro will form a new company with a new name and new leadership that will offer a broader range of mobile chips. The companies say the deal will provide growth opportunities in the mobile devices, network infrastructure, and aerospace/defense sectors.
The deal works out to $9.73 for each TriQuint share, a 5.4% premium to Friday's close.
In a nod of approval from shareholders on both sides, TQNT shares surged 25% intraday to $11.76, a 52-week high. RFMD shares jumped 21.5% to $7.06, also a 52-week high.
This is why the deal is so profitable...
A Solid Mobile Strategy
Chipmakers are racing to deliver the next big thing for cellular networks and mobile devices. RFMD and TQNT hope the two combined companies are better than one standalone.
TriQuint makes specialized communications chips for smartphones and communications networks. Its biggest customer is Apple Inc. (Nasdaq: AAPL) contractor FoxConn. RF Micro designs and manufactures high-performance radiofrequency products and solutions for applications that drive wireless and broadband communications.
"The world's demand for mobile data is growing exponentially," RF Micro Chief Executive Officer Bob Bruggeworth said in a statement. "With this merger of equals, we will bring under one roof all of the critical RF building blocks necessary to innovate at the heart of what makes mobile mobile - the crucial back-and-forth data flow between the mobile device and the network."
Indeed, mobile traffic data surged 81% worldwide last year to 18 times the size of the entire Internet in 2000, according to Cisco Systems Inc. (Nasdaq: CSCO). By 2018, global mobile data traffic is forecast to increase by more than 10 times the current pace.
The combined company is expected to generate revenue of more than $2 billion. In addition, the tie-up is projected to achieve at least $150 million in cost synergies, $75 million in annualized synergies the first year after closing, and another $75 million the second year.
And shareholders might not have seen these gains if it weren't for yet another pushy activist investor...
Another Activist Investor Takes a Bow
Since October, TriQuint has been pressured by activist investor Starboard Value, L.P. (currently fighting Darden Restaurants Inc. [NTSE: DRI] to spin off Red Lobster).
The New York-based investment advisor, which invests in what it believes are deeply undervalued companies and then actively engages with management to unlock value, called on TriQuint to enact a number of changes.
Starboard suggested TriQuint should review its business strategies and take meaningful steps to increase shareholder value. Starboard pushed for TQNT to outsource some operations and consider selling its mobile power amplifier business, claiming it was a drag on the company.
TriQuint's power amplifiers have been a staple in the iPhone for years. However, the company hasn't been able to parlay that success into more sustainable growth across the explosive smartphone industry.
In December, Starboard nominated its own lineup of board candidates, maintaining major changes were necessary to reverse the chipmaker's "prolonged underperformance."
Not bowing to Starboard, TriQuint posted steady sales growth of 7.7% to $892.9 million last year. For all of 2013, the stock shot up 68%, more than double the 30% return of the broad-based S&P 500 Index.
But TQNT gave a tepid outlook for Q1 of 2014, expecting sales between $170 million and $180 million, down 5% year over year. The reason for the lackluster guidance was that one big (unnamed) mobile customer cut orders due to a backlog of inventory.
Under terms of the deal, expected to close in the second half of 2014, TriQuint shareholders will receive 1.675 shares of the new company. RF Micro shareholders will receive one share for each share held.
Upon completion of the transaction, the companies will enact a 1-for-4 reverse stock split. The result will be roughly 145 million outstanding shares and a company boasting a market cap of nearly $4 billion.
Navigating a risky market can cause sleeplessness, but getting left behind is a nightmare. Here's Michael Robinson's "Sominex Strategy" for making big profits in a rocky market...
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