Analog Devices (ADI) and Maxim Integrated Products (MXIM) announced that they have entered into a definitive agreement under which ADI will acquire Maxim in an all stock transaction that values the combined enterprise at over $68B. The transaction, which was unanimously approved by the Boards of Directors of both companies, will strengthen ADI as an analog semiconductor leader with increased breadth and scale across multiple attractive end markets. Under the terms of the agreement, Maxim stockholders will receive 0.630 of a share of ADI common stock for each share of Maxim common stock they hold at the closing of the transaction. Upon closing, current ADI stockholders will own approximately 69% of the combined company, while Maxim stockholders will own approximately 31%. The transaction is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes. Upon closing, two Maxim directors will join ADI’s Board of Directors, including Maxim President and CEO, Tunc Doluca. The transaction is expected to close in the summer of 2021, subject to the satisfaction of customary closing conditions, including receipt of U.S. and certain non-U.S. regulatory approvals, and approval by stockholders of both companies.

In a research note following the Wall Street Journal’s article saying that Analog (ADI) is in talks to buy Maxim Integrated (MXIM) for $20B in an all-stock deal, Credit Suisse analyst John Pitzer says that his analysis suggest a 2025 target model for Analog/Maxim of roughly $10B in revenue, 45%-50% OpM, $8 of EPS and $4B in free cash flow by 2025. If assuming a 20-25-times free cash flow on his 2025 target model, the combined company could support an $80B-$100B market cap or 25%-50% upside to a transaction value of $65B, he contends. Pitzer would see an Analog/Maxim transaction as very positive especially against his view that the move to a Data Driven Economy is likely to drive a need for scale in analog as customers want to work with fewer supplier who can do more. In addition, continued M&A in the sector underscores his view that Semis continue to be highly strategic and an undervalued asset class in the market. The analyst reiterates an Outperform rating on Analog, with $130 price target on the shares.

This transaction is expected to be accretive to adjusted EPS in 18 months subsequent to closing with $275M of cost synergies by the end of year two, driven primarily by lower operating expenses and cost of goods sold. Additional cost synergies from manufacturing optimization are expected to be realized by the end of year three subsequent to closing. ADI expects the combined company to yield a stronger balance sheet, with a pro forma net leverage ratio of approximately 1.2×4. This transaction is also expected to be accretive to free cash flow at close, enabling additional returns to shareholders. The transaction is expected to close in the summer of 2021, subject to the satisfaction of customary closing conditions, including receipt of U.S. and certain non-U.S. regulatory approvals, and approval by stockholders of both companies.

In a deal uniting two semiconductor makers, Maxim Integrated (MXIM) agreed to be acquired by Analog for $20.91 billion in stock. Analog Devices CEO Vincent Roche joins “Squawk on the Street” to discuss. For access to live and exclusive video from CNBC subscribe to CNBC PRO: https://cnb.cx/2NGeIvi

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Source: https://www.youtube.com/watch?v=7raDmicTjts

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