After the close of the market on Tuesday, Analog Devices Inc. (NYSE: ADI) announced it will acquire Linear Technology Corp. for $14.8 billion in a deal motivated largely by a desire to create a bigger supplier of analog circuitry.
The two companies have minimal product overlap. Analog Devices (ADI) provides data converters, amplifiers and RF and microwave products, while Linear sells power ICs and amplifiers (ADI has a small power IC business). Both target the same verticals, including the communications, automotive and industrial markets.
During the conference call announcing the deal, analysts practically begged the two companies for evidence that the combination will lead to some specific new value. The leaders of both companies were insistent there was value, but they weren't too specific.
ADI president and chief executive officer Vincent Roche said both companies have been fielding more requests from customers for more system-level expertise, and they believe the combination of the two companies will be able to satisfy some of those requirements.
Much of the value of the combination will come from cross-selling opportunities with each other's customers, Roche said. ADI said it saw this benefit when it acquired Hittite in 2014, and said it expects it will experience a similar boost with the purchase of Linear Tech.
He added, "The reason we're combing the two companies is to create a very compelling innovation story for the long term. We see tremendous opportunity to combine the technology talents and product development capabilities of both companies to create a great future together. That's the real value of the combination of Linear Tech with ADI."
The acquisition was something of a surprise. Bob Swanson, who co-founded Linear Technology 35 years ago and is now its executive chairman, has long been skeptical of mergers as a vehicle for growth.
In most mergers, he said on today's conference call, one plus one too often equals less than two. He said Linear and ADI might be the only pair of companies in the analog IC market he's ever seen where the combination might equal more than two, in terms of the complementary product portfolios, the cross-selling opportunities and the likelihood the two will be able to innovate together.
Roche will continue to serve as president and CEO of the combined company. David Zinsner, SVP and CFO of Analog Devices, will continue to serve as SVP and CFO of the combined company.
The Linear Technology brand will continue to serve as the brand for Analog Devices’ power management offerings.
As for the financing of the deal, Linear Technology shareholders will receive $46 per share in cash and a little less than one quarter of a share of Analog Devices common stock for each share of Linear Technology common. The deal is expected to close in the first half of next year.
— Brian Santo, Senior Editor, Components, T&M, Light Reading