Giant Chip Mergers Underway (TXN, NSM, ADI, SMH, ALTR, XLNX, MU, FCS, LLTC)

If you have wondered why there have been so few legacy chip companies announcing mergers, you have to wonder no more.  After the close of trading came word that Texas Instruments Inc. (NYSE: TXN) is acquiring National Semiconductor Corporation (NYSE: NSM).

The all-cash merger comes to about $6.5 billion.  For National Semiconductor holders that will translate to a buyout price of $25.00 per share.  Both companies have approved the deal at the Board of Directors level and if this deal was reflected in National Semiconductor stock then we’d ask about why National Semi was down on the day.  National Semi shares closed down 1.1% at $14.07 in regular trading and its 52-week trading range is $11.84 to $16.00.  Some may wonder if Texas Instruments is having to overpay for this one or not.  The last time National Semi shares were at $25.00 was back in 2007.

This deal is likely to eliminate the cloud that has hung over semiconductor shares.  We showed some technical analysis just on Friday showing how the Semiconductor HOLDRs (NYSE: SMH) ETF was acting extremely poor ahead of earnings season.  The secondary beneficiary here is perhaps Analog Devices Inc. (NYSE: ADI) with its $11.5 billion market cap as its shares closed down 1.7% at $38.50 in regular trading  and rose above $40.50 in the after-hours market.

One rumor or guess which has been in the market for about as long as memory serves is a Altera-Xilinx merger.  Altera Corporation had a $13.6 billion market cap at the close and its shares are up 2.8% at $43.72 in the after-hours session.  Xilinx Inc. (NASDAQ: XLNX) had a $8.3 billion market cap at the close and its shares are indicated up more than 1% at $32.35 in the after-hours session.

Micron Technology Inc. (NASDAQ: MU) is up by 2% at $11.42 in the after-hours session versus a 52-week trading range of $6.36 to $11.95.  Fairchild Semiconductor International Inc. (NYSE: FCS) is up 5% at $18.60 in the after-hours and its closing market cap was $2.23 billion.  Linear Technology Corporation (NASDAQ: LLTC) is up 3.7% at $34.30 in the after-hours session and its closing market cap was about $7.5 billion.

The TI-National Semi merger aims to combine two of the industry giants in analog semiconductors for the world of electronic systems.  TI has larger scale and a larger portfolio, National Semi is likely to be much more profitable inside TI than on its own.

TI and National Semi are both halted after the close, but this merger here will either drive other mergers or it will at least drive traders to speculating on which other mergers could be seen.  We’d like to congratulate both companies on keeping this one secret.  Most chips had been weak and remained weak even today ahead of the merger, and we did not even see any unusual options trading in National Semiconductor throughout the trading day.

JON C. OGG