Renesas to buy IDT for $6.7bn

November 2018 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

November 2018 Issue

In a transaction designed to “enhance global leadership in embedded solutions”, Japanese semiconductor manufacturer Renesas Electronics Corporation is to acquire Integrated Device Technology, Inc. (IDT), a leading supplier of analogue mixed-signal products including sensors, connectivity and wireless power.

A definitive agreement under which Renesas will acquire IDT for $49 per share in an all-cash transaction representing an equity value of approximately $6.7bn (approximately 733bn yen) – the transaction combines two recognised leaders in embedded processors and analogue mixed-signal semiconductors, each with unique strengths in delivering products to improve performance and efficiency in high-computing electronic systems.

The transaction is expected to be highly accretive to Renesas’ pro-forma non-GAAP gross margin, non-GAAP earnings per share (EPS) and free cash flows immediately after closing. Renesas plans to finance the transaction with cash reserves and bank loans. There will be no issuance of additional share capital.

Since 2016, Renesas has been executing its growth strategy toward thriving in the global marketplace and becoming a global leading embedded solution provider. As part of this initiative, the company has been working to expand its analogue solution line-up and to strengthen its kit solution offerings.

To this end, the acquisition of IDT will provide Renesas with access to a vast array of robust analogue mixed-signal capabilities in embedded systems, including radio frequency (RF), advanced timing, memory interface and power management, optical interconnect, wireless power and smart sensors. The combination of these product lines with Renesas’ advanced microcontrollers (MCUs) and system-on-chips (SoCs) and power management integrated circuits (ICs) will enable the company to offer comprehensive solutions that support the increasing demand for high data processing performance.

“This acquisition will bring us complementary, market-leading analogue mixed-signal assets and an incredibly talented group of professionals to help us boost our embedded solution capabilities,” said Bunsei Kure, representative director, president and chief executive of Renesas. “IDT’s products combined with our MCUs, SoCs and power management ICs will enable Renesas to widen its product offerings as well as to expand its reach into areas such as the growing data economy-related space.”

The boards of directors of both companies have unanimously approved the transaction.

“The combination of IDT’s analogue mixed-signal leadership with Renesas’ world-leading microcontroller and automotive/industrial franchise creates a new global powerhouse,” said Gregory L. Waters, president and chief executive of IDT. “The combined company will possess the key capabilities that customers in the modern data economy demand.”

Financial advisers to Renesas were Morgan Stanley, BofA Merrill Lynch and Mizuho Securities. Morrison & Foerster LLP, Covington & Burling LLP and Nagashima Ohno & Tsunematsu acted as Renesas’ legal counsel. Acting as exclusive financial adviser to IDT was Morgan, with Latham & Watkins LLP acting as legal counsel.

The Renesas/UDT transaction is expected to close in the first half of 2019, following approvals by IDT shareholders and relevant regulatory authorities.

A potentially disruptive coda to the Renesas/IDT transaction has come via the launch of an investigation by shareholder rights law firm Johnson Fistel, LLP into whether IDT board members breached their fiduciary duties in connection with the proposed sale of the company to Renesas. The investigation will examine if alternatives to the acquisition were adequately pursued and if the best price possible for IDT shares of common stock was obtained.

The Johnson Fistel investigation has added frisson due to Wall Street analysts’ projections for IDT’s future earnings and revenue growth.

Fraser Tennant