By Don Clark And Ulrike Dauer
Infineon Technologies AG agreed to buy International Rectifier
Corp. for about $3 billion, a deal uniting mature semiconductor
makers that points to quickening consolidation in the sector.
The German company's $40-a-share offer represents a 51% premium
to International Rectifier's closing share price on Tuesday, and
the stock surged by nearly that percentage on Wednesday to
$39.10.
Infineon's move is the latest in a wave of combinations between
makers of chips and related products, a large market with more than
300 specialized suppliers. Though sales are growing in most
segments, companies with cash are finding a series of benefits in
acquiring smaller players.
Semiconductor makers, for example, can reach new customers by
adding more products--and save money by pushing more chips through
one sales force. They can also reduce manufacturing costs by
shifting products to run factories at higher volumes.
Reducing the number of suppliers in a particular niche also
tends to reduce price competition, helping the buyer's bottom
line.
"You consolidate a market down to three guys and good things
happen," said Craig Berger, an analyst who tracks semiconductors
for Hedgeye Risk Management.
He adds that low interest rates for debt are another factor that
is "juicing" recent activity.
Large deals between established semiconductor makers were
relatively rare until Texas Instruments Inc. announced a $6.5
billion deal for National Semiconductor Corp. in 2011. More recent
transactions include the purchase last year by Maxim Integrated
Products Inc. of Volterra Semiconductor Corp. for $575.3 million,
and a $6.6 billion deal for Avago Technologies Ltd. to buy LSI
Corp.
In February, RF Micro Devices Inc. announced a deal to buy
TriQuint Semiconductor Inc. for about $1.6 billion.
Infineon was formed in 1999 from semiconductor operations of
Siemens AG, a German company that traces its work in silicon to
1945. The Munich-based spinoff makes a wide variety of chips for
industrial equipment, cars and other applications.
A focus of the latest deal is managing power consumption in
products ranging from washing machines to servers and other
hardware in corporate computer rooms. Both companies sell products
that include individual transistors and modules of multiple
components for power management.
Infineon is the No. 1 supplier of those devices, with about 11%
of that $20 billion segment, the research firm IHS Technology
estimates.
International Rectifier, founded in 1947, has about 4% of that
market. The company was founded by Leon Lidow and his son, Eric
Lidow, who was succeeded as chief executive by his own son,
Alexander. The younger Mr. Lidow left the company following an
investigation that led to a 2008 restatement of the company's
financial results.
The company, based in the Los Angeles suburb of El Segundo,
Calif., specializes in different parts of the power-management
market and also is developing products based on a material called
gallium nitride that Infineon said was also was attractive.
"Two exciting portfolios are coming together," said Reinhard
Ploss, Infineon's chief executive, in a conference call.
Oleg Khaykin, who became International Rectifier's chief
executive in 2008, said it has been closing production lines and
making other steps to cut costs. "Infineon will get the benefit of
those savings," he said, adding that there may be other chances to
help the combined companies improve efficiency.
Infineon said it will fund the deal using cash-on-hand and
credit facilities. The deal is expected to close late this year or
early next year, subject to regulatory approval, the companies
said.
International Rectifier also reported Wednesday that it swung to
a profit in its fiscal fourth quarter, as all of its customer
segments saw gains in revenue. For the period ended June 29, the
company reported a profit of $12.9 million, or 18 cents a share,
compared with a loss of $6.1 million, or nine cents a share, a year
earlier.
Write to Don Clark at don.clark@wsj.com and Ulrike Dauer at
ulrike.dauer@wsj.com
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