Wednesday, April 06, 2011

Is Texas Instruments Overpaying? -

Is Texas Instruments Overpaying? -

By now you have seen the news that Texas Instruments is buying National Semiconductor. On class yesterday we discussed it a bit and whether the premium was too high. From the NY Times:

"It is paying $25 a share in cash — a premium of 78 percent over National Semiconductor’s closing stock price on Monday. It is a stock that has traded in a narrow range in the last two year, rising just 2.25 percent for the year until Tuesday. It last reached $25 in November 2007.

Citigroup analysts note that the offer values National Semiconductor at a “noticeable premium” of 19.1 times its estimated price/earnings ratio for 2012. Nomura points to a multiple of 4.4 times enterprise value to 2011 sales, against a ratio of 3.8 for comparable companies.

Romit Shah, an analyst with Nomura, argues that Texas Instruments is overpaying for National Semiconductor. He said the the cost synergies in the deal are “immaterial” and that big semiconductor acquisitions “have a terrible track record of generating shareholder value."

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