Intel agrees to buy Altera for $16.7 billion

A few days after a bigger fish in Broadcom went to Avago (see "Avago to buy Broadcom"), Intel Corp. (NASDAQ: INTC) announced it will buy FPGA Altera Corp. (NASDAQ: ALTR) for $54 per share. The all-cash deal values the number two FPGA vendor (behind Xilinx) at approximately $16.7 billion. Intel expects to close the deal in six to nine months.

A few days after a bigger fish went to Avago (see "Avago to buy Broadcom"), Intel Corp. (NASDAQ: INTC) announced it will buy FPGA Altera Corp. (NASDAQ: ALTR) for $54 per share. The all-cash deal values the number two FPGA vendor (behind Xilinx) at approximately $16.7 billion. Intel expects to close the deal in six to nine months.

Intel will fund the transaction via a combination of cash from the balance sheet and debt.

The addition of FPGAs is a strong complement to Intel's processors. In fact, the company says it plans to offer Altera's FPGAs with Intel's Xeon processors as highly customized, integrated products. Intel touted the data center and Internet of Things (IoT) markets as areas of opportunity during a call this morning to explain its proposed purchase.

Intel has been providing foundry services for Altera, including producing its Stratix 10 FPGAs, since 2013. The two companies announced a partnership in March 2014 to co-develop multi-die devices as well.

"Given our close partnership, we've seen firsthand the many benefits of our relationship with Intel—the world's largest semiconductor company and a proven technology leader, and look forward to the many opportunities we will have together," said John Daane, president, CEO, and chairman of Altera, via a press statement. "We believe that as part of Intel we will be able to develop innovative FPGAs and system-on-chips for our customers in all market segments."

Assuming the deal goes through, Altera will become an Intel business unit with its own sales force and engineering team. Intel says it will continue support and development of Altera's ARM-based and power management product lines. The company expects its new assets to be accretive to non-GAAP EPS and free cash flow in the first year after close. Altera reported revenue for fiscal year 2015 of $1.9 billion, gross margin of 66%, and net income of $500 million.

Both boards have unanimously approved the deal, which remains subject to regulatory approvals and the customary closing conditions, including the approval of Altera's stockholders.

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