FBR Downgrades Xilinx, Altera In Massive M&A Note

In a report published Thursday, FBR Capital Markets analyst Christopher Rolland said that if consolidation in the Semiconductor industry continues at the pace observed so far this year, 32 percent of all US publically traded companies would be acquired in 2015!

"While this run-rate is likely not sustainable and should slow as the year progresses, we still expect above-average rates of consolidation for the remainder of this cycle (low teens annually, well above the historic rate of ~6%)," analyst Christopher Rolland said.

In the report FBR Capital Markets noted the key points from the assessment of the "next wave of M&A candidates":

1. The purchasing company eliminates about 15 percent of the M&A target's costs, on average.
2. FBR’s Accretion Index reveals that a large number of targets succeeded in being accretive by more than 50 percent to EPS and generated about 6.5 percent ROIs after financing costs.
3. The median deal premium in 2014 and 2015 was merely 21.4 percent higher than the traded stock price, versus the takeout premium of 37.8 percent over 2010–2013. "These modest premiums may sustain near-term deal momentum (although they may suggest that insiders believe we are closer to cycle peak than to trough)."

According to the Accretion Index, the list for financially attractive deals includes:

Top of the List -

• Atmel Corporation ATML
• Lattice Semiconductor LSCC
• Applied Micro Circuits Corporation AMCC
• Fairchild Semiconductor Intl Inc FCS
• ON Semiconductor Corp ON
• Marvell Technology Group Ltd. MRVL
• NVIDIA Corporation NVDA

Middle of the list -

• ARM Holdings plc (ADR) ARMH
• Advanced Micro Devices, Inc. AMD
• Cavium Inc CAVM

Bottom of the list -

• NXP Semiconductors NV NXPI
• Intel Corporation INTC
• Xilinx, Inc. XLNX
• Texas Instruments Incorporated TXN

FBR Capital Markets downgraded the rating on Altera Corporation ALTR to Market Perform, "given the $54 purchase by Intel," and downgraded the rating on <b>Xilinx, Inc.</b> XLNX to Market Perform, "on the achievement of our price target, and as we believe valuation now embeds a sanguine takeout premium."