Facing pressure from shareholders, chipmaker Altera is reportedly back in acquisition talks with Intel.
The New York Post first reported the rumor earlier this week that Altera has returned to the bargaining table, citing an anonymous source with direct knowledge of the talks who said that the matter would be settled one way or the other within a few weeks. A first round of talks made the news in March, but broke down when Altera apparently rejected a $54 per share offer from Intel. Altera’s chipsets are used in a wide variety of telecom products, ranging from test and measurement systems to cellular base stations.
Intel declined to comment on the rumors when contacted by RCR.
Late last month, hedge fund TIG Advisors began urging fellow Altera shareholders to vote against the company’s lead independent director, T. Michael Nevins, as a show of protest that the Intel talks had failed and as a way to pressure the board to “immediately re-engage with Intel regarding its mutually-beneficial strategic acquisition offer without delay.”
TIG Advisors cited a number of analysts who questioned Altera’s refusal of a seemingly very attractive offer, with a significant premium over the company’s value as a standalone entity. One of TIG’s citations was an April 9 Citi Research report that blamed overconfidence on Altera’s part, writing: “After the initial shock of Altera turning down a $54.00 take out offer subsided, we are not surprised management and the board turned down the offer given our view that Altera has had a history of overestimating its growth rate. Altera has stated it can grow 2X the overall semiconductor industry, when it has outgrown the industry by 1% according to our metrics.”
TIG also noted that analysts had put Altera’s value between $35-$43 per share, with a median of $37 per share; and that its own analysis put the company’s value as an independent business at $40-$43 per share – so the reported Intel offer of $54 per share represented a substantial premium.
On April 23, Altera made its most recent financial report with lower-than-expected earnings, and sales down 6% year-over-year to $435.5 million. Net income dropped from $116.5 million in the first quarter of last year to $94.9 million in the same period this year. John Daane, president, CEO and chairman of the board, said in a statement at the time that while the company “had anticipated a weak start to the year, the first quarter was more challenging than expected.”
With those numbers coming on the heels of the rejection of a generous offer, TIG – and, according to Bloomberg, Altera stakeholder Cadian – began pushing for reconsideration of a sale. TIG took its campaign public and in its press release said that “in light of the lower than expected earnings and guidance reported by Altera on the evening of April 23rd, we are utterly baffled as to what the Board may be thinking.”
Despite TIG’s efforts, Nevins was reelected to the board at Altera’s recent annual meeting, but drew far more no votes than the other board candidates. According to an Altera filing on the results of the meeting, most of the board candidates drew more than 240,000 yes votes and fewer than 15,000 no votes, but Nevins received more than 38,000 no votes – perhaps prompting a move to reengage with Intel.
Altera’s stock has risen in response to the word that talks may be back on. In March, reports that Altera was in talks with Intel propelled the stock from around $35 per share to nearly $45 per share. It has been trading in the mid-$40s per share since then, but the latest speculation has pushed the stock above $45 per share.
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