By Tim Kelly and Douglas Busvine
TOKYO/BERLIN (Reuters) - Renesas Electronics Corp has agreed to buy Dialog Semiconductor for 4.9 billion euros ($5.9 billion) in cash, boosting its position in low-power technology and connectivity across smart devices, cars and industry.
One of the world's biggest auto chipmakers, Renesas aims to capitalise on technology shifts that are putting more electric vehicles on the streets with assisted driving technology while the rollout of 5G networks is connecting billions of devices to the so-called Internet of Things.
"The transaction we announced today represents our next important step in catapulting Renesas’s growth plan,” the Japanese company's president and CEO, Hidetoshi Shibata, said on Monday of the latest in a string of acquisitions.
Renesas offered 67.50 euros a share for Apple Inc (NASDAQ:AAPL) supplier Dialog, representing a 20% premium to Friday's closing price and a 52% mark-up to a weighted three-month average.
The Frankfurt-listed shares in Anglo-German chip designer Dialog were up 16% at 65.28 euros in morning trade, just shy of the agreed sale price.
"Power management is the DNA of Dialog’s intellectual property," Mirabaud Securities analyst Neil Campling said after the deal was announced.
"As we move forward in a world increasingly focused on battery technology, EV vehicles and leveraging the ‘power sucking’ capabilities of 5G in the smart industrial future - power, power efficiency and power management are crucial."
British-based Dialog had confirmed on Sunday that it had received an offer from Renesas after media reports of interest from the Japanese company and Franco-Italian chipmaker STMicroelectronics.
Dialog CEO Jalal Bagherli said its board had recommended the Renesas offer after extensive discussions, adding that it is subject to the UK takeover code and would consider any counter-bid.
STMicroelectronics declined to comment.
WHEELS AND DEALS
Renesas and Dialog had agreed in August to cooperate in automotive computing platforms, shoprtly before a global shortage of semiconductors forced some carmakers to curb production.
The Japanese group, which has a 30% market share for microcontrollers used in cars, bought U.S. chip designer Integrated Device Technology Inc for $6.7 billion in 2018, the year after its $3.2 billion purchase of U.S. chipmaker Intersil.
Renesas has filed to issue up to 270 billion yen ($2.6 billion) in new shares to fund its latest deal, which Shibata said would boost earnings immediately on closing. He forecast an immediate gross margin uplift of 0.6 percentage points and a rise of 0.4 percentage points in core earnings.
Dialog specialises in power-management chips and low-energy Bluetooth products used in fitness trackers and cordless earphones.
It agreed in 2018 to transfer people and patents involved in designing the main power-management chip used in iPhones to Apple in a $600 million deal that left it a smaller and more broad-based business.
“We have successfully executed on a diversification strategy that positions Dialog for high growth,” said Dialog's Bagherli, praising its fit with Renesas's embedded computing, analogue and power portfolio.
Shares in Renesas fell as much as 6.9% before closing 3.6% down, lagging a 2.1% gain in the broader market, on concerns that it would borrow too much to pay for the deal. CEO Shibata reassured analysts that its leverage ratio would peak at 3.5 times core earnings after the deal but return to a multiple of 1 over the next two years.
Renesas was advised by Nomura and law firms Covington & Burling and Nagashima Ohno & Tsunematsu, while JPMorgan (NYSE:JPM), Qatalyst Partners and Linklaters worked with Dialog.
($1 = 0.8315 euros)