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January 05, 2011, 10:52 AM EST
By Olga Kharif and Sarah Rabil
(Adds valuation comparison in 10th paragraph.)
Jan. 5 (Bloomberg) -- Qualcomm Inc., the world’s largest maker of mobile-phone chips, agreed to buy Atheros Communications Inc. for about $3.2 billion in cash, broadening its lineup of Wi-Fi networking technology.
Atheros investors will get $45 a share, Qualcomm said today in a statement. That’s 22 percent more than Santa Clara, California-based Atheros’s closing price on Jan. 3, before reports about the purchase emerged.
Qualcomm aims to nab a bigger piece of the Wi-Fi market and escalate competition with Broadcom Corp. Qualcomm, based in San Diego, already bundles Atheros’s chips with its baseband processors for mobile phones, and they work together to let devices seamlessly pass calls from cellular to Wi-Fi networks, said Gary Mobley, an analyst at Benchmark Co. in New York.
“What Qualcomm would gain is having the full suite of connectivity offerings,” Mobley said yesterday, following a New York Times report that the deal was imminent.
Atheros shares rose as high as $44.83 in trading before U.S. exchanges opened. They advanced the most in almost five years yesterday on the Nasdaq Stock Market, climbing $6.98, or 19 percent, to $44. The stock added 4.9 percent last year. Qualcomm rose as much as 65 cents to $51.62 in early trading.
Qualcomm is seeking new sources of revenue after scrapping an expansion into wireless television. The company plans to shut its wireless Flo TV service in March because of slow demand. Qualcomm had $10.3 billion in cash and short-term investments as of the end of September.
Wi-Fi Savvy
Atheros brings expertise in home networking and products that help computers and other electronics link up without wires. That includes Wi-Fi connections in airports, homes and coffee shops. This week, Atheros announced a new set of energy- efficient chips for wireless routers and consumer electronics.
Qualcomm has tried to grab a bigger piece of the market before. In 2006, the company purchased a Wi-Fi chipmaker named Airgo Networks Inc., then struggled to gain traction in the area, Mobley said.
The number of times people use Wi-Fi hot spots should rise to 11 billion annually by 2014, from 2 billion in 2010, according to consulting firm In-Stat. Companies such as AT&T Inc. are expanding their Wi-Fi coverage, part of a plan to relieve congestion on cellular networks.
There have been more than 40 acquisitions in the U.S. networking-products industry in the past 12 months with an average premium of 48 percent, according to data compiled by Bloomberg. The premium is calculated from the 20-day average trading price prior to the announcement. The premium for Atheros was 27 percent on that basis.
The average deal size in the networking-products industry was $205.8 million over the same period, including net debt.
Insider Trading
Qualcomm expects to close the Atheros purchase in the first half. The acquisition will be “modestly accretive” to earnings per share in fiscal year 2012, the first full year of combined operations, Qualcomm said.
The acquisition is the company’s biggest since it went public in 1991, according to Bloomberg data. Qualcomm has announced 26 acquisitions in the past five years with an average size of $320.3 million and average premium of 8.9 percent, according to Bloomberg data.
Atheros was one of the companies tarnished by the insider- trading case involving Galleon Group LLC. In November, former Atheros Vice President Ali Hariri was sentenced to 18 months in prison as part of the crackdown on the hedge fund.
Hariri, who was a manager at Atheros’s broadband-networking unit, was the third person to be sentenced in the Galleon case. He was ordered to pay a $50,000 fine.
The Atheros acquisition may give Qualcomm a powerful weapon against Irvine, California-based Broadcom, whose combination Wi- Fi and baseband chips are used by the likes of Apple Inc., Mobley said.
“If Qualcomm can add features like Wi-Fi, it will increase the average selling price they can charge and their available market,” Mobley said.
--With assistance from Sarah Rabil in New York. Editors: Ville Heiskanen, Cecile Daurat
To contact the reporters on this story: Olga Kharif in Portland, Oregon, at okharif@bloomberg.net; Sarah Rabil in New York at srabil@bloomberg.net
To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net; Peter Elstrom at pelstrom@bloomberg.net
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(Adds valuation comparison in 10th paragraph.)
Jan. 5 (Bloomberg) -- Qualcomm Inc., the world’s largest maker of mobile-phone chips, agreed to buy Atheros Communications Inc. for about $3.2 billion in cash, broadening its lineup of Wi-Fi networking technology.
Atheros investors will get $45 a share, Qualcomm said today in a statement. That’s 22 percent more than Santa Clara, California-based Atheros’s closing price on Jan. 3, before reports about the purchase emerged.
Qualcomm aims to nab a bigger piece of the Wi-Fi market and escalate competition with Broadcom Corp. Qualcomm, based in San Diego, already bundles Atheros’s chips with its baseband processors for mobile phones, and they work together to let devices seamlessly pass calls from cellular to Wi-Fi networks, said Gary Mobley, an analyst at Benchmark Co. in New York.
“What Qualcomm would gain is having the full suite of connectivity offerings,” Mobley said yesterday, following a New York Times report that the deal was imminent.
Atheros shares rose as high as $44.83 in trading before U.S. exchanges opened. They advanced the most in almost five years yesterday on the Nasdaq Stock Market, climbing $6.98, or 19 percent, to $44. The stock added 4.9 percent last year. Qualcomm rose as much as 65 cents to $51.62 in early trading.
Qualcomm is seeking new sources of revenue after scrapping an expansion into wireless television. The company plans to shut its wireless Flo TV service in March because of slow demand. Qualcomm had $10.3 billion in cash and short-term investments as of the end of September.
Wi-Fi Savvy
Atheros brings expertise in home networking and products that help computers and other electronics link up without wires. That includes Wi-Fi connections in airports, homes and coffee shops. This week, Atheros announced a new set of energy- efficient chips for wireless routers and consumer electronics.
Qualcomm has tried to grab a bigger piece of the market before. In 2006, the company purchased a Wi-Fi chipmaker named Airgo Networks Inc., then struggled to gain traction in the area, Mobley said.
The number of times people use Wi-Fi hot spots should rise to 11 billion annually by 2014, from 2 billion in 2010, according to consulting firm In-Stat. Companies such as AT&T Inc. are expanding their Wi-Fi coverage, part of a plan to relieve congestion on cellular networks.
There have been more than 40 acquisitions in the U.S. networking-products industry in the past 12 months with an average premium of 48 percent, according to data compiled by Bloomberg. The premium is calculated from the 20-day average trading price prior to the announcement. The premium for Atheros was 27 percent on that basis.
The average deal size in the networking-products industry was $205.8 million over the same period, including net debt.
Insider Trading
Qualcomm expects to close the Atheros purchase in the first half. The acquisition will be “modestly accretive” to earnings per share in fiscal year 2012, the first full year of combined operations, Qualcomm said.
The acquisition is the company’s biggest since it went public in 1991, according to Bloomberg data. Qualcomm has announced 26 acquisitions in the past five years with an average size of $320.3 million and average premium of 8.9 percent, according to Bloomberg data.
Atheros was one of the companies tarnished by the insider- trading case involving Galleon Group LLC. In November, former Atheros Vice President Ali Hariri was sentenced to 18 months in prison as part of the crackdown on the hedge fund.
Hariri, who was a manager at Atheros’s broadband-networking unit, was the third person to be sentenced in the Galleon case. He was ordered to pay a $50,000 fine.
The Atheros acquisition may give Qualcomm a powerful weapon against Irvine, California-based Broadcom, whose combination Wi- Fi and baseband chips are used by the likes of Apple Inc., Mobley said.
“If Qualcomm can add features like Wi-Fi, it will increase the average selling price they can charge and their available market,” Mobley said.
--With assistance from Sarah Rabil in New York. Editors: Ville Heiskanen, Cecile Daurat
To contact the reporters on this story: Olga Kharif in Portland, Oregon, at okharif@bloomberg.net; Sarah Rabil in New York at srabil@bloomberg.net
To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net; Peter Elstrom at pelstrom@bloomberg.net
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