QLogic Corporation (NASDAQ:QLGC) has agreed to be acquired by fellow semiconductor company Cavium Inc (NASDAQ:CAVM). The transaction has an equity value of $1.36 billion if cash on the balance sheet of QLogic is included. The enterprise value of the deal is about $1 billion.
QLogic and Cavium expect to complete their merger in 3Q2016 if they obtain all the approvals required to close the transaction.
Cash and stock
QLogic is being acquired by Cavium for a combination of cash and stock, but the cash component is heavier than stock. First, shareholders of QLogic will receive a total of $15.50 for each share of the company they own. That means that the acquisition is providing them a premium of 14% over the value of their shares on the closing day immediately before the deal was made public.
To make up the $15.50 transaction value per share, Cavium will pay $11 in cash per share of and issue 0.098 of its shares for every share of QLogic outstanding.
The impact of the acquisition
Cavium expects the acquisition of QLogic to continue its revenue and customer diversification. According to Cavium, QLogic’s connectivity and storage products are highly complementary to its portfolio of computing, networking and security solutions. Therefore, the acquisition of QLogic should provide it with the opportunity to offer comprehensive solutions in storage, networking, data center and cloud markets. The company is modeling an additional $2 billion market opportunity courtesy of Qlogic.
Cavium is also betting to take advantage of the higher profile customers it will be getting to fuel its top line growth and diversification.
Effect on the bottom-line
Cavium expects QLogic to boost its 2017 adjusted EPS by $0.60 so that it would register a total EPS of $0.70 for the year. Additionally, Cavium hopes to save $45 million in costs by the end of 2017.
Cavium generated revenue of $412.7 million in 2015 and QLogic generated revenue of $458.9 million in its fiscal year ended April 3.
The deal between Cavium and QLogic continues the consolidation in the semiconductor space. Ongoing semiconductor consolidation has seen Intel Corporation (NASDAQ:INTC) acquire Altera for $16.7 billion and Avago combine with Broadcom in a $37 billion transaction that led to the creation of Broadcom Ltd (NASDAQ:AVGO).