ON Semiconductor announced an all-stock acquisition of Synaptics, valued at $7 billion, and the stock dropped over 23% following the announcement, reflecting investor concerns.
The deal aims to integrate power, sensing, and connected computing for edge AI applications.
Investors in ON Semiconductor (NASDAQ: ON), or onsemi, went to sleep last night thinking they were holding a power and sensing chip company whose core automotive and industrial end markets were inflecting, while its AI data center revenue was booming and becoming significant for the company.
However, they woke up facing the prospect of becoming a technically integrated provider of power, sensing, and now connected computing, following the announcement of an agreement to buy Synaptics (NASDAQ: SYNA). Unfortunately, the initial reaction to the deal isn’t positive, and onsemi has declined by more than 23% by 1 pm today.
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The all-stock transaction (1.35 shares of onsemi for every share of Synaptics) values the latter at $7 billion and “represents an approximately 19% premium to the volume weighted average closing prices of onsemi and Synaptics over the last 10 trading days,” according to the press release.
Clearly, it’s a deal based on the idea of technically integrating onsemi’s power and sensing technology with Synaptics’ connected computing solutions. Purely by way of example, this could involve integrating onsemi’s power management and sensing technology into an electric vehicle, with Synaptics’ edge AI processing to run inference models and make real-time decisions. Meanwhile, Synaptics control systems (the company is most famous for its touchpads) and wireless connectivity enhance the driver experience.
Image source: Getty Images.
Aside from investor concerns about the dilutive impact of the deal on onsemi and its price, there are probably two other concerns. First, while the two companies have end markets in common, such as automotive and industrial, Synaptics has significant exposure to mobile and consumer products, which onsemi does not.
Second, the deal marks a transformational change in onsemi’s business, which carries execution risk and may take some time for investors to digest.
That said, the deal makes perfect sense in a world moving toward edge AI inference, and onsemi’s management is trying to maximize the value it can obtain from it. As such, don’t be surprised if the stock bounces from here as more details emerge.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends ON Semiconductor and Synaptics. The Motley Fool has a disclosure policy.
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