Altera Merger Termination Has Ripple Effect for Semiconductor Stocks

Easy come, easy go. That is what the rumor mill around the world of mergers and acquisitions will tell you. The earlier reports that Intel Corp. (NASDAQ: INTC) was in talks to acquire Altera Corp. (NASDAQ: ALTR) appear to have come to nothing. This is likely to have a ripple effect in the related areas in the semiconductor space.

CNBC’s David Faber broke the news on Thursday morning that talks have ended, due to an inability to come to the right terms. What is interesting is the price that Faber talked about — he said in the low $50s, which means a $50.00 floor was likely.

24/7 Wall St. was always concerned about the reality of this rumored merger. The reason is regulatory oversight. Intel is considered the de facto king of processors in personal computers (PCs), and the company is currently selling its mobile chips at losses as it tries to catch up in the smartphone and tablet markets, around mobile Web use and the Internet of Things.

Another concern is that, as mentioned, this will create a ripple around the chip space. In some ways, it is fairly easy to argue that an acquisition by Intel would create a World War I reaction: if Intel mobilizes, then its rivals have to mobilize. This is why we considered the rumors about ARM Holdings PLC (NASDAQ: ARMH) and Apple Inc. (NASDAQ: AAPL) as driven by the possibility of an Altera-Intel deal.

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The immediate fallout was also seen in Altera’s mirror-image competitor, Xilinx Inc. (NASDAQ: XLNX). If Altera was bought by Intel, then maybe another buyer would have wanted Xilinx. There was a slight market cap differential here: Xilinx is worth $11.1 billion and Altera is now worth just under $12 billion, after the sell-off.

On a net-net basis, the merger termination reports here have hurt the chip sector.

Altera is unsurprisingly down the most out of the chip companies. Its stock rose to $45 when the deal was announced, and was down to $42 by Wednesday’s close. Shares were last seen down 5.6% at $39.72, against a 52-week range of $30.47 to $45.00. Analysts have a consensus standalone price target of almost $38 for Altera. Shares were trading around $35 before the Intel rumors surfaced.

Xilinx shares were actually flat at $42.55, against a 52-week range of $36.24 to $53.75. Xilinx shares jumped from $39.98 to $42.32 after the Altera rumors surfaced, and the analyst consensus price target is $42.75.

ARM Holdings shares are down only $0.10 at $50.64, against a 52-week range of $37.75 to $54.64. American depositary shares were trading at $49 prior to Wednesday’s news pop that Apple might be interested in acquiring it. We have warned about some issues here in believing that merger rumor, although anything seems possible in M&A in tech these days. ARM has a consensus analyst price target of $56.65.

ALSO READ: Why Analysts Were Cold Toward an Intel-Altera Buyout

Intel shares were also lower on Thursday morning. Its stock was down 25 cents at $31.06, against a 52-week range of $25.74 to $37.90, and the consensus analyst target price is $34.61.

If you want a reference on what a $15 billion Altera buyout would mean for Intel, it would be easy for the company to do, if regulators were not an issue, as Intel’s market cap is $147 billion.

Easy come, easy go.

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