What Pushed SIMO Stock 17.2% Up on Thursday?

MaxLinear, Inc. (NASDAQ: MXL) and Silicon Motion Technology Corp. (NASDAQ: SIMO) have signed an agreement under which MaxLinear will acquire Silicon Motion in a cash and stock deal. The combined company will have an enterprise value of $8 billion.

After the news was released on Thursday, SIMO stock gained 17.2% to close at $95.16.

As per the terms of the agreement, for each American Depositary Share (ADS) of Silicon Motion, the holder will get 0.388 common shares of MaxLinear and $93.54 in cash. Each ADS of Silicon Motion represents four ordinary shares of the company.

The President and CEO of Silicon Motion, Wallace Kou, said, “Combining Silicon Motion with MaxLinear creates significant economies of scale, accelerates our expansion into enterprise storage markets and unites unparalleled intellectual property to continue serving our customers with high-quality expertise and technical support.”

Strategic Impact

The combined entity is likely to generate revenues of $2 billion per year. Further, the acquisition is expected to lead to annual synergies of at least $100 million within 18 months of completion, which is expected to occur in the first half of next year.

The transaction is also projected to be immediately accretive to MaxLinear’s cash flow and adjusted EPS.

Following the completion of the acquisition, MaxLinear’s shareholders will own around 86% stake in the combined company. The remaining 14% stake will be held by the shareholders of Silicon Motion.

About MaxLinear

Headquartered in California, MaxLinear provides radio frequency (RF), analog, digital and mixed-signal integrated circuits for access and connectivity, wired and wireless infrastructure, and industrial and multi-market applications.

About Silicon Motion

Hong Kong-based Silicon Motion develops, manufactures, and sells semiconductor products for the electronics market. It offers embedded and expandable storage, radio frequency integrated circuits, and embedded graphics.

Wall Street’s Take

After the agreement was announced, Roth Capital analyst Sujeeva De Silva downgraded the rating on Silicon Motion to Hold from Buy and lowered the price target to $110 from $120 (15.6% upside potential).

The analyst said, “MaxLinear (will) benefit by incorporating Silicon Motion’s infrastructure storage capability given the latter’s solid storage controller and interconnect capability.”

Overall, the stock has a Moderate Buy consensus rating based on two Buys and three Holds. SIMO’s average price target of $111 implies 16.7% upside potential. Shares have gained almost 50% over the past year.

Conclusion

The merger of MaxLinear and Silicon Motion will lead to the creation of a diversified technology portfolio as well as expand the combined company’s market presence.

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