HomeBusinessStory Atmel to be acquired by UK's Dialog Semiconductor in $4.6 billion deal

A British semiconductor company that supplies chips to Apple said Monday it is acquiring Silicon Valley's Atmel in a $4.6 billion deal that strengthens both companies to compete for business in the coming Internet of Things.

The acquisition has a smaller Dialog Semiconductor, based in the United Kingdom with 1,500 worldwide employees, buying Atmel, based in San Jose with 5,200 global employees, for more than Dialog's market value. Dialog is issuing new shares and borrowing to finance the purchase.

The deal is something of a surprise, said Mark Hung of Gartner. Atmel was known to be for sale, but either a Chinese company or a larger American chip maker was expected to be the buyer.

Chipmaker Dialog Semiconductor is buying San Jose-based Atmel for about $4.6 billion. (Atmel photo)

But "both companies are in some of the more industrial and automotive applications, and there they compliment each other very well," he said.

The deal doubles Dialog's revenue base and helps it diversify its offerings, said Stacy Rasgon of Sanford Bernstein. "You could argue there's a fit. It's a smaller European company buying a bigger U.S. company. We'll see how it works out."

Making chips for iPhones and iPads is a major source of revenue for Dialog.

Atmel investors were relatively happy with a cash and stock deal that gives them a 43 percent premium on their shares, but Dialog shares were down 18 percent on the Frankfurt exchange. Atmel closed at $8.19, up 12.65 percent.

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"If this is approved by both sides, it is a win-win," said Christopher Rolland of FBR Capital Markets. "For Atmel, it gives shareholders an exit at a fair and reasonable price, and for Dialog, it gives shareholders diversification, scale" and growth in assets.Mergers among semiconductor companies have reached record levels in the past year as smaller companies combine forces to cope with the rising cost of making chips.
"It's a pretty broad competitive landscape that's pretty challenging" for companies like Atmel, said Betsy Van Hees of Wedbush Securities. "They need to continue to invest, which is expensive, and they need new products, which is expensive."
Other chip companies that have combined forces recently include Cypress Semiconductor, which acquired Spansion; Avago Technologies, which acquired Broadcom and LSI, and Intel, which recently announced it is acquiring Altera in a deal aimed at strengthening its cloud offerings.
Dialog said the acquisition will create a company with $2.7 billion in revenue from products for mobile power, the Internet of Things, the automotive and other industries. Cost "synergies" of $150 million a year are hoped for within two years.
Steve Laub, president and CEO of Atmel, said in a letter to customers that the combination of Dialog, a fabless semiconductor maker mainly in power management, with Atmel, which makes micro controllers, will "create a semiconductor franchise with the requisite scale, technology, products and worldwide team with a greater ability to scale with our customers, innovate and drive growth."
In May, Laub announced his intention to retire at the end of August, but he has remained on hand for the acquisition.
The combined company will have "a strong presence" in mobile, industrial and automotive markets and give it a "leading position" in the Internet of Things, he said.
The transaction is for $2.5 billion in equity and $2 billion in cash and is expected to close in the first quarter of 2016.


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