TLDR
- Texas Instruments is buying Silicon Laboratories for $231 per share in a deal worth $7.5 billion
- Silicon Labs stock jumped 49% to $203.52 while Texas Instruments fell 1.2% to $222.54
- The acquisition gives Texas Instruments access to wireless connectivity chips used in smart homes and industrial automation
- Texas Instruments expects $450 million in annual cost savings within three years and immediate EPS growth
- Silicon Labs beat Q4 earnings with $0.56 EPS on $208.21 million revenue, both topping estimates
Texas Instruments made its move into wireless connectivity. The company announced it will acquire Silicon Laboratories for $231 per share in an all-cash deal.
The transaction values Silicon Labs at $7.5 billion. That’s a hefty premium over the company’s $4.7 billion market value from Tuesday’s close.
Silicon Laboratories Inc., SLAB
Silicon Labs stock rocketed 49% to $203.52 in morning trading Wednesday. Texas Instruments shares dipped 1.2% to $222.54.
The deal brings together two chip makers with different specialties. Texas Instruments dominates analog semiconductors for industrial and automotive applications. Silicon Labs focuses on mixed-signal chips for wireless connections in smart homes and industrial automation.
“Silicon Labs’ leading embedded wireless connectivity portfolio enhances our technology and IP,” said Texas Instruments CEO Haviv Ilan. The acquisition allows the company to serve customers at greater scale.
Silicon Labs is based in Austin, Texas. The company makes chips that power wireless connections in commercial applications.
Financial Impact and Cost Savings
Texas Instruments expects the deal to boost earnings per share immediately after closing. The company projects $450 million in combined annual cost savings within three years.
Those savings will come partly from bringing Silicon Labs manufacturing in-house. Texas Instruments operates 300mm wafer fabrication facilities in the U.S. with internal assembly and test capabilities.
The company announced plans last year to invest $60 billion across three manufacturing sites in Texas and Utah. Silicon Labs products will move to this infrastructure.
Stifel analyst Tore Svanberg called the combination “one of the most formidable wireless-analog portfolios in the industry.” The deal gives Texas Instruments specialized connectivity capabilities.
Earnings Beat Ahead of Deal
Silicon Labs reported fourth quarter results before the acquisition news. The company posted earnings of $0.56 per share, beating estimates by $0.01.
Revenue came in at $208.21 million, topping the $207.63 million consensus. The company saw seven positive EPS revisions in the last 90 days.
Benchmark analyst Cody Acree maintained a Buy rating on Texas Instruments with a $250 target price. He views Silicon Labs as a “unique growth business” with cross-selling opportunities.
Acree doesn’t expect competing bids. He sees little upside from the agreed premium for Silicon Labs shareholders.
Texas Instruments recently hit an all-time high after its own upbeat earnings report. The company supplies analog chips to customers including Apple.
The deal strengthens Texas Instruments’ position in wireless connectivity. Silicon Labs brings expertise in embedded systems for Internet of Things devices.
Texas Instruments plans to leverage its manufacturing scale and cost advantages. The company’s internal capacity provides flexibility for Silicon Labs products.
The acquisition closed at a premium that values Silicon Labs’ wireless technology portfolio. Texas Instruments will integrate the business into its existing operations.
