U.S.-based Allegro MicroSystems (ALGM) rejected a $6.9 billion takeover bid from its larger rival Onsemi, formerly known as ON Semiconductor (ON), calling the offer “inadequate.” Onsemi revealed its $35.10 per share bid for Allegro MicroSystems on Wednesday, following Allegro’s rejection of a $34.50 per share offer in September 2024. The company plans to fund the potential acquisition with committed financing, cash, and a revolving credit facility. After the offer announcement, ALGM stock jumped nearly 7%, while ON shares climbed 4.5%.
Onsemi Eyes Growth with Allegro Acquisition
According to market reports, Onsemi has been in discussions with advisers for months regarding a potential acquisition of Allegro MicroSystems. Earlier this week, Bloomberg reported that Allegro draws takeover interest from Onsemi.
Onsemi and Allegro operate in the semiconductor industry, specializing in power and sensing solutions for automotive and industrial applications. Consequently, Onsemi believes that merging with Allegro would create a highly complementary partnership while generating immediate value for Allegro shareholders. Additionally, the deal is expected to help Onsemi navigate the ongoing slowdown in demand for automotive chips, as automakers continue to clear excess inventory accumulated during the COVID-19 pandemic.
Meanwhile, industry experts see a strategic alignment between the two companies, given their strong presence in the automotive and industrial chip markets amid evolving industry dynamics. However, Allegro’s rejection of the proposal signals confidence in its independent growth potential and higher valuation expectations.
Is ON Semiconductor Stock a Good Buy?
Overall, Wall Street has a Moderate Buy rating on ON stock, based on 15 Buys, eight Holds, and one Sell assigned in the last three months. The average ON Semiconductor share price target is $60.87, which implies a 31% upside from the current levels.
