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Consolidation Continues as Microchip Buys Microsemi for $8.35 Billion

The semiconductor industry is shrinking again. On Thursday, Microchip Technology agreed to acquire Microsemi in an $8.35 billion cash deal, pushing it into a wide range of chips targeting everything from data centers and missiles to communications equipment and aerospace electronics.

These markets represent around 80% of Microsemi’s business, and Microchip is tapping into them to diversify its product portfolio. Microchip primarily sells chips embedded in cars, factory equipment and products like washing machines and kitchen appliances – which account for about 84% of its business.

“Joining forces and combining our complementary product portfolios and end market exposure will offer our customers a richer set of solution options to enable innovative and competitive products for the markets they serve,” said Ganesh Moorthy, Microchip's chief operating officer, in a statement.

Microchip plans to purchase Microsemi at a price of $68.78 per share, a premium of about 7 percent over Microsemi’s share price of $64.30 on the Wednesday before the deal. The deal will allow the Chandler, Arizona-based Microchip to target markets worth $50 billion, up from about $32 billion annually.

The transaction is expected to close in the second quarter. Microchip said it expects to generate $300 million in additional revenue three years from cost cutting and revenue growth after the deal closes. The combined company is expected to start with around $5.8 billion in annual sales.

Microchip said that it would also take on $1.8 billion of Microsemi's debt. For Microchip, the deal follows its $3.6 billion acquisition of Atmel in 2016 and its $839 million purchase of Micrel in 2015. Sanghi has a reputation for wringing higher profit margins out of companies that Microchip has acquired through a combination of layoffs and other tactics.

The deal will combine “the leading embedded control market position of Microchip Technology with the world class power, security, reliability and performance solutions from Microsemi,” said James J. Peterson, chairman and chief executive of the Aliso Viejo, California-based Microsemi, in a statement.


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