Microchip Technology Inc. and Microsemi Corp. announced that the two companies have signed an agreement for Microchip to acquire Microsemi for $68.78 per share in cash. The acquisition price represents a total equity value of about $8.35 billion and a total enterprise value of approximately $10.15 billion, after accounting for Microsemi’s cash and investments, net of debt, on its balance sheet at December 31, 2017.

Annualizing the December quarter's revenue, the combined company will approach $6 billion in revenue at 62 percent non-GAAP gross margin and 37 percent operating margin. The two companies serve different markets: Microchip's top three revenue generators are industrial, automotive and consumer, while Microsemi's are communications, aerospace/defence and computing.

The boards of both companies unanimously approved the acquisition. Assuming approval by Microsemi stockholders, customary regulatory approvals and other closing conditions, the transaction is expected to close during the second quarter of calendar 2018.

Following the closing, the deal is expected to be immediately accretive to Microchip’s non-GAAP earnings per share (EPS). Based on currently available information, Microchip estimates achieving $300 million in synergies in the third year closing the transaction.

Microchip plans to finance the purchase with approximately $1.6 billion in cash from the combined company, approximately $3 billion from Microchip’s existing line of credit, approximately $5 billion in new debt and $0.6 billion from a cash bridge loan.

James Peterson, chairman and CEO of Microsemi, said, “This transaction represents a compelling opportunity for Microsemi stockholders, employees and customers, by combining the leading embedded control market position of Microchip Technology with the world class power, security, reliability and performance solutions from Microsemi.”

Steve Sanghi, chairman and CEO of Microchip, said, “Even as we execute a very successful Microchip 2.0 strategy that is enabling organic revenue growth in the mid to high single digits, Microchip continues to view accretive acquisitions as a key strategy to deliver incremental growth and stockholder value. The Microsemi acquisition is the latest chapter of this strategy and will add further operational and customer scale to Microchip.”

J.P. Morgan is acting as Microchip’s exclusive financial advisor and is providing $5.6 billion in committed financing. Wilson Sonsini Goodrich & Rosati, P.C. is acting as Microchip’s legal advisor. Qatalyst Partners is acting as exclusive financial advisor to Microsemi. O’Melveny & Myers LLP is acting as Microsemi’s legal advisor.

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