Microsemi Agrees To Microchip's Acquisition Offer, Stock Up

Microsemi Corporation (NASDAQ:MSCC) recently announced that it has agreed to Microchip Technology’s (NASDAQ:MCHP) acquisition offer, which is worth $10.15 billion in total enterprise value.

Following the news, shares of Microsemi rallied to a new 52-week high of $67.50, eventually closing a tad bit lower at $67.30 on Mar 2. Shares of the company moved up almost 4.7% from the prior session. Notably, Microsemi shares have returned 28.3% over a year, outperforming the industry’s rally of 20.4%

Microsemi topped the Zacks Consensus Estimate in one of the trailing four quarters and matched thrice, delivering an average positive surprise of 0.23%.

Currently, Microsemi carries a Zacks Rank #3 (Hold) and has a market capital of $6.04 billion.

Expanding Product Portfolio, End-Market Strength

Microsemi’s strong focus on innovation and continuing investment on research & development has been the primary driver behind its expanding product portfolio. The company continues to introduce products on a frequent basis.

Moreover, Microsemi has been benefiting from strong demand for its products in data centers and aerospace & defense market.

The company has been witnessing robust performance in its end markets over the past few quarters. Growth in broadband gateway end markets has contributed positively to the company’s communications segment in the last quarter.

Further, strong satellite and space applications led to strong results in aerospace & defense market. Also improving conditions in data centers have contributed well to the company’s top-line growth.

Shareholders to Gain From Microchip Deal

Microchip’s interest in Microsemi can be primarily attributed to the aforesaid growth drivers. Apart from a robust portfolio, the acquisition will expand Microchip’s total addressable markets. Strong demand for Microsemi’s solutions in Data Center, Communications, Defense & Aerospace markets bodes well for Microchip in the long haul.

Moreover, the deal is expected to be immediately accretive for Microchip on a non-GAAP basis.

On the other hand, the deal is positive for Microsemi as it creates shareholder wealth. Microchip will pay $68.78 per share in cash to Microsemi shareholders, representing a total equity value of almost $8.35 billion. Per Reuters, the offer price reflected a premium of 7% to Microsemi’s closing price of $64.30 on Mar 1, 2018.

Stocks to Consider

Analog Devices (NASDAQ:ADI) and Texas Instruments (NASDAQ:TXN) are stocks worth considering from the broader technology sector. Both the stocks carry Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Analog Devices and Texas Instruments is currently pegged at 12% and 9.60%, respectively.

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