Post Intel, Now Altera Faces Big Task To Convince Shareholders

Intel’s proposed takeover talks with Altera Corp, a considerably smaller chip maker, have apparently ended. Now Altera management faces the difficult task of explaining its decision to shareholders.

Big task to convince shareholders

An analyst at RBC Capital Markets, Doug Freedman, claimed that Altera’s board will be under pressure because of the refusal to the deal. “Investors are going to demand some explanations.” Freedman believe sthat now the company will have to back its decision with a plan on how they will offer shareholders more value than what Intel offered.

Michael Mauboussin: Here’s what active managers can do

michael mauboussin, Credit Suisse, valuation and portfolio positioning, capital markets theory, competitive strategy analysis, decision making, skill versus luck, value investing, Legg Mason, The Success Equation, Think Twice: Harnessing the Power of Counterintuition, analysts, behavioral finance, More Than You Know: Finding Financial Wisdom in Unconventional Places, academics , valuewalkThe debate over active versus passive management continues as trends show the ongoing shift from active into passive funds. Q2 2020 hedge fund letters, conferences and more At the Morningstar Investment Conference, Michael Mauboussin of Counterpoint Global argued that the rise of index funds has made it more difficult to be an active manager. Drawing Read More

“If the board and management can’t show a plan that would create a value at or above what Intel is offering, they are going to have to justify why they are saying no,” said Freedman.

The value of the takeover deal was estimated to exceed $10 billion. The market capitalization of Altera was $12.6 billion as of Wednesday, and since the talks first came to light, its share have rocketed over 20%.

The companies had been involved in discussions for quite some time, but reportedly they could not agree over a price, leading to the end of all discussions, according to a report from CNBC. As reported on Thursday, Intel made an offer to Altera in the vicinity of $50 per share, which was 50% more than Altera’s share price when the news of possible talks first broke on March 27.

Could have been biggest acquisition for Intel

Altera would have helped Intel in programmable chips, which are used widely in data centers. Experts are expecting consolidation in the segment especially after NXP Semiconductors acquired Freescale Semiconductor last month for around $12 billion. According to Thomson Reuters data, global semiconductor mergers and acquisitions amounted to $31 billion last year. Also, in the last twelve months, four hundred seventy-two chip M&A deals were made globally compared to 383 in the prior year, according to Reuters.

Intel’s largest acquisition to date is the security software maker McAfee, which it snapped up in 2011 for $7.7 billion. However, if the Altera deal would have gone through, it would have represented the biggest acquisition for the chip maker.

On Thursday, Altera’s shares closed up 3.2% at $42.33 while Intel shares closed down marginally lower at $31.24. Year to date, shares of the chip making giant are down 15%.