Tessera Moves to Acquire DTS

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DTS Inc. (NASDAQ: DTSI) shares saw a handy gain early on Tuesday after it was announced that this company would be acquired by Tessera Technologies Inc. (NASDAQ: TSRA). The transaction has been unanimously approved by both boards of directors and is expected to close by late fourth-quarter in 2016 or early first quarter 2017, but it is still subject to regulatory and shareholder approval.

Under the terms of the agreement, Tessera will acquire DTS for $42.50 per share in an all-cash transaction that is valued up to roughly $850 million.

Compared to Monday’s closing price, this transaction offers a premium of nearly 24%. The transaction also represents premiums of 36% and 69% from the 50-day ($31.17) and 200-day ($25.10) moving averages.

The transaction is expected to be immediately accretive to Tessera’s earnings per share and free cash flow. The combined company is expected to realize $15 million in annualized cost synergies within the first 12 to 18 months following the closing of the transaction.

Tessera CEO Tom Lacey commented:

Our acquisition of DTS’s talented team and industry-leading products will represent a transformational step in the execution of Tessera’s strategic vision, with exciting new product development and marketing opportunities. We expect this acquisition to be immediately accretive to Tessera’s earnings and accelerate growth. Our complementary technology portfolios are ideally suited to deliver the next generation of audio and imaging solutions to mobile, consumer electronics, and automotive markets while expanding our ability to address incredible new opportunities in IoT and AR/VR. I am particularly excited that Jon Kirchner and the exceptional DTS team will join the Tessera family as we continue to grow and expand the DTS brand.

Shares of DTS closed Monday at $34.33 but were up more than 22% to $42.15 early Tuesday. The consensus analyst price target is down at $39.50, and a previous 52-week trading range was $19.62 to $34.60.

Tessera jumped 3.5% to $33.67 shortly after Tuesday’s open. The consensus price target is $49.00, and a 52-week range is $26.21 to $37.87.