Intel wants to acquire smaller chipmaker Altera and has entered a $15 billion deal with the company. The deal will most likely become finalized toward the end of the coming week.
On June 1, Intel's standstill agreement with Altera, which began earlier this year, is scheduled to expire. When that happens, the company, known to be the largest chipmaker in the world, will have an option to launch afterwards what is known as a hostile bid.
Back in April, Altera rejected Intel's unsolicited offer of $54 per share following several months of negotiations. Later on, talks about the acquisition broke off, which could have been pushed by the disappointing earnings on Altera's part. It was said that Altera shares were trading at about $35 in March prior to the leakage of a possible deal with Intel.
"A deal is likely by the end of next week," said a source who added the possibility that the talks could also turn against Intel's favor.
The latest merger event occurred when Avago agreed to buy Broadcom for $37 billion. The merger is so far this year's second megadeal in the chip industry, which is expected to be followed by more mergers in the not-so-distant future.
Rumors about Altera partnering with Intel began in February 2013 when the company used the PC and server chip mogul as a foundry for its field programmable gate arrays (FPGAs). It had been speculated then that Intel may decide to acquire Altera in the end, allowing it to expand its presence in the chip industry.
Some question why Intel is willing to spend as much as $15 billion to acquire a maker of FPGAs, which earns only $1.93 billion in revenue and $472.7 million in net income, but Intel may have good reason for the move.
According to Intel, there are some big changes that are about to happen in datacenter computing, in wired and wireless networks and client devices. However, its Xeon and Atom processors or even its lineup of ASICs are not enough to address the anticipated huge changes. Hybrid computing is becoming increasingly apparent with more and more systems becoming tailor-made from a number of components.
"FPGAs are a much better device to use in the datacenter for hardware acceleration, and certainly in many cases are much better than a GPU and, due to its very low power, a CPU," said CFO Ron Pasek of Altera. "A year ago, when we were talking about this, it was not resonating at all, and since then some major announcements have helped people understand the opportunity."
The largest acquisition made by Intel so far was when it acquired security company McAfee in 2010 at a deal worth $8 billion. As of now, the move has not shown any clear benefits.
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