Why an Intel-Altera Merger Is Making Sense Again

The recently announced acquisition of Broadcom Corp. (NASDAQ: BRCM) by Avago Technologies Ltd. (NASDAQ: AVGO) has seemingly rekindled merger interest and speculation within the semiconductor segment. This deal was valued at $37 billion and is considered one of the largest tech acquisitions.

Back in February, Intel had made moves to acquire Altera with an offering price of what was said to be $58 per share. After this offer, both companies entered into a non-disclosure agreement. At that time, Intel reviewed Altera’s non-public information and then revised its offer to $54 per share.

Both companies already work together fairly closely, according to Sunit Rikhi, vice president and general manager of Intel Custom Foundry:

Our close collaboration enables us to work together in many areas related to semiconductor manufacturing and packaging. Together, both companies are building off one another’s expertise with the primary focus on building industry-disrupting products.

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Just this week, Intel and Altera announced that they would be collaborating on the development of multi-die devices that leverage Intel’s world-class package and assembly capabilities and Altera’s leading-edge programmable logic technology. The collaboration is an extension of the foundry relationship between Altera and Intel, in which Intel is manufacturing some of Altera’s products.

However, Altera shareholders were encouraged by TIG Advisors in early May to vote against a board member (T. Michael Nevens) and said that Altera’s board may use the upcoming foundry decision as a poison pill to ward off any attempts by Intel. TIG even went as far to say that the board of directors had failed the shareholders, denying them an immediate value opportunity.

All this might not matter in just a few short days when the standstill pact expires. Intel already has had a good look at Altera, and whether it is willing to acquire Altera remains a mystery for now. Should Intel petition shareholders, we might see negotiations become hostile.

Ultimately, any Altera deal is likely to come down to the price. This is also assuming that there are no regulatory issues in the United States or in international jurisdictions, but that assumption likely should not be taken for granted in the current regulatory environment.

Shares of Altera were up about 4% at $48.85 on Friday morning, in a 52-week trading range of $30.47 to $49.80. The stock has a consensus analyst price target of $39.36. The company currently has a market cap of $14.7 billion.

Intel shares were up only 1.2% at $34.43. The consensus price target is $34.86, and the 52-week trading range is $26.72 to $37.90. Intel has a market cap of $164.6 billion.

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As a reminder, speculators will drive shares up, even without knowing whether any talks are likely or planned. That standstill agreement expiration sure coincides at an interesting time when you consider the Broadcom-Avago merger timing.