ON Semi Buys Fairchild for $2.4 Billion

The deal continues the acquisition spree among chipmakers that so far this year has exceeded $80 billion.
Katie Kuehner-HebertNovember 18, 2015

Continuing a wave of acquisitions in the chipmaking industry, ON Semiconductor said Wednesday it had agreed to acquire Fairchild Semiconductor International for $2.4 billion.

More than $80 billion in semiconductor M&A deals has been announced so far this year, according to Reuters, as companies seek to cut costs, meet demand for cheaper chips and diversify portfolios.

Fairchild sells chips used in cars, smartphones, appliances and other products. Its annual revenue is about a tenth of Texas Instruments, the biggest maker of such products.

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Analysts said ON Semi’s move for the company was most likely to keep it out of the hands of a competitor, including China’s Tsinghua Unigroup, which aims to be the world’s No.3 chipmaker.

ON Semi will pay $20 a share for Fairchild, a 41% premium to where the stock was trading before news reports last month suggested Fairchild was seeking a buyer. In trading Wednesday, the shares were up 8.5%, at $19.41.

“Our plan is to bring together two companies with complementary product lines to offer customers the full spectrum of high, medium and low voltage products,” ON Semi’s chief executive Keith Jackson said in a news release.

ON Semi’s power-management circuits are used in everything from aircraft to home appliances and automobiles to computers. The combined company will have annual revenue of $5 billion, with little product overlap, Jackson said.

Among other recent deals in the semiconductor industry, Intel acquired Altera to boost its data center business, while Avago targeted Broadcom to expand its wireless chip business.

“The industry has matured a lot,” Steve Smigie, an analyst at Raymond James & Associates, told Bloomberg. “There’s not as much growth as there used to be, so the companies are looking for new ways to generate value for shareholders. In this environment, with very low interest rates, it’s easy to get cheap financing, so that makes the potential for M&A much higher.”

In 2014, by comparison, mergers and acquisitions in the industry totaled $37.7 billion.