Tessera Buys DTS In All-Cash Deal Worth $850 Million

Tessera Technologies, Inc. TSRA and DTS, Inc., DTSI reached a definitive agreement through which the former would buy the latter for $42.50 a share in cash. This represented a 28 percent premium based on 30-day volume weighted average price of September 19. The total transaction is valued at about $850 million.

Tessera expects the transaction to be accretive to its EPS and free cash flow immediately. The company expects annualized cost synergies of about $15 million between the first 12 and 18 months after the transaction closure. The company plans to use its cash on hand and debt financing of $600 million to fund the acquisition.

The company expects the merged entity to generate considerable free cash flow to offer flexibility to fund quarterly dividends, retire debt, continue investments and explore M&A options.

Tessera CEO, Tom Lacey, commented, "Our complementary technology portfolios are ideally suited to deliver the next generation of audio and imaging solutions to mobile, consumer electronics, and automotive markets while expanding our ability to address incredible new opportunities in IoT and AR/VR."

The merged entity is expected to generate pro forma revenue of about $450 million in 2016 and half of them would come from product licensing. The company expects the transaction to be completed either in the fourth quarter of current year or in the first quarter of 2017.