A Bidding War For Microsemi Is 'Unlikely,' KeyBanc Says

Microchip Technology Inc. MCHP reached an agreement to acquire Microsemi Corporation MSCC for $8.35 billion or $68.78 per share in a deal likely to close this year with no competing bids, according to KeyBanc.

The Analyst

KeyBanc Capital Markets' Michael McConnell downgraded Microsemi's stock rating from Overweight to Sector Weight with no assigned price target.

The Thesis

Microchip's deal to buy Microsemi represents a total equity value of $8.4 billion and total enterprise value of $10.2 billion, McConnell said in the downgrade note. The price target implies a 13.8x P/E multiple on McConnell's calendar 2019 EPS estimate and a 4.6x EV/sales multiple on 2019 estimates.

Microchip isn't expecting to run into any regulatory hurdles given the minimal product overlap with Microsemi, the analyst said. The merger agreement is structured in a way that should prevent Microchip from having to divest any of its or Microsemi's product lines, McConnell said. Microchip is expecting the deal to close within three months.

Microsemi is "unlikely" to be part of a bidding war, so the stock's downgrade is based on expectations for a smooth takeover process by the second quarter, the analyst said.

Price Action

Shares of Microchip and Microsemi were both trading nearly flat early Monday morning.

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Photo courtesy of Microsemi Corp.