Texas Instruments Acquisition

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This is from today’s (3/6/11) New York Times “DealBook”:

Texas Instruments to Buy National Semiconductor for $6.5 Billion 

Texas Instruments said on Monday afternoon that it had agreed to acquire National Semiconductor for $6.5 billion in cash.

The deal would combine two leaders in analog semiconductors, a $42 billion market last year.  Analog chips process continuous signals, as opposed to 1’s and 0’s, and are used in thousands of products, many of them digital, from cameras to medical products.

Under terms of the agreement, National stockholders will receive $25 in cash for each share, a premium of 78 percent to National Semiconductor’s closing stock price on Monday. The deal values National Semiconductor at nearly 10.6 times earnings before interest, taxes, depreciation and amortization, a high multiple compared with many of its rivals.

“This acquisition is about strength and growth,” said Rich Templeton, the Texas Instruments chief executive, said in a statement. “National has an excellent development team, and its products combined with our own can offer customers an analog portfolio of unmatched depth and breadth.”

“The combined sales team will be 10 times larger than National’s is today,” he added, “and the portfolio will be exposed to more customers in more markets.”

Texas Instruments said its plans to use cash on its books and debt to finance the acquisition. Texas Instruments has more than $3 billion in cash, according to Capital IQ. Morgan Stanley is providing $2.5 billion in financing.

The deal is the largest for Texas Instruments since 2000, when it acquired Burr-Brown, another analog chip maker, for $7.6 billion in stock.

And at a time when merger activity is on the upswing, the deal for National Semiconductor is one of the biggest technology acquisitions in the last 12 months, dwarfed only by Intel’s $7.7 billion purchase of McAfee in August.

The deal would be the fifth-biggest semiconductor acquisition since 2000, according to Thomson Reuters data.

The merger agreement has a $350 million break-up fee, according to a regulatory filing.

Morgan Stanley and the law firm of Jones Day advised Texas Instruments. Qatalyst Partners — Frank Quattrone’s firm — and Goldman Sachs advised National Semiconductor. The law firm of Latham & Watkins served as legal counsel to National Semiconductor.

Top U.S. Semiconductor M&A Since 2000

Date Target Acquiror Value ($ millions)
7/10/2000 SDL Inc. JDS Uniphase 40,992.57
9/15/2006 Freescale Semiconductor Private equity consortium 17,454.53
1/17/2000 E-Tek Dynamics JDS Uniphase 15,252.55
6/21/2000 Burr-Brown Texas Instruments 6,792.22
4/4/2011 National Semiconductor Texas Instruments 6,502.28
10/7/2003 Freescale Semiconductor Shareholders 5,045.9
8/27/2000 MMC Networks Applied Micro Circuits 4,424.23
12/4/2006 Agere Systems LSI Logic 3,779.61
1/15/2009 Spansion Creditors 3,270.3
6/4/2007 Solectron Flextronics International 3,153.35

Source: Thomson Reuters

NOTE:  Undoubtedly, as the T.I. CEO stated, “this acquisition is about strength and growth” – for T.I., as it consolidates market power in a critical oligopolistic industry.  There are no constraints any more from anti-monopoly laws.  According to Barry Lynn, “The Meltdown [of 2008] also accomplished what many long-term predations by big industrial firms against smaller rivals had failed to do.  One of the most notable collapses was the October 2008 decision by the semiconductor maker Advanced Micro Devices – which for more than a decade has been fingered for extinction by giant Intel – to offload its manufacturing arm and try to survive as a pure design firm.” [1]

That kind of restructuring is not listed in this article, which only reports on acquisition.  The crucial semiconductor industry is continuing to consolidate, in both the digital and analogue areas, to the advantage of the surviving firms and the ultimate disadvantage of customers in the semiconductor market, ultimate consumers, and the economy.

JMH – 4/6/11

_______

[1] Barry C. Lynn, Cornered:The New Monompoly Capitalism and the Economics of Destrution, John Wiley & Sons, 2010, p. 13.

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3 Responses to Texas Instruments Acquisition

  1. lamplight3r says:

    “Texas Instruments said on Monday afternoon that it had agreed to acquire National Semiconductor for $6.5 billion in cash.
    The deal would combine two leaders in analog semiconductors, a $42 billion market last year. Analog chips process continuous signals, as opposed to 1’s and 0’s, and are used in thousands of products, many of them digital, from cameras to medical products.”

    “NOTE: Undoubtedly, as the T.I. CEO stated, “this acquisition is about strength and growth” – for T.I., as it consolidates market power in a critical oligopolistic industry. There are no constraints any more from anti-monopoly laws. According to Barry Lynn, ”The Meltdown [of 2008] also accomplished what many long-term predations by big industrial firms against smaller rivals had failed to do.”

    Without gettig into the specifics of TI and/or this particular acquisition. I would be interested in Mike and Skip’s thoughts along the lines of future balancing between corporation, government regulation, and the interests of private individuals.

    Now through the Citizens United case, the Supreme Court has given corporations the full rights of an individual with respect to free speech and no limit to campaign finance, the likelihood of governmental regulation of actions of corporations is bound to decline.

    It appears to me that there are two controlling principals which define corporations:
    1) Their only raison d’etre is to make profits… without exposing staff or owners to personal liability.
    2) Corporations do not die.

    So using the TI and NS merger, can we realistically expect anything (in the long run) other than successful corporations gradually and ultimately gaining ownership of entire markets, industries, real estate, and otherwise controlling all of the physical and financial assets of individuals ?

    We have already seen the deleterious situations of “company towns”, and it’s not difficult to imagine corporate control of even higher higher magnitude.
    Perhaps this was a reductio ad absurdum, but how can our future government act on behalf of our citizens to achieve balance between the rights/needs of businesses and those of our citizens ?

    • Excellent points, and thanks. I look at Benton Harbor, MI for example, and see what happens when corporations run the machinery of government. Individual rights and opportunities are utterly destroyed. Milton Friedman called this combination “tyranny.” To save ourselves from plutocracy, we’ll have to step back and acknowledge that it’s ALL about how humans organize their activities. Organizations exist for people, not the other way around. So we’ll need to return to sensible tax laws and business regulations, but let’s start by attacking the Rick Perry idea that “government” should be inconsequential in our lives. Government will automatically be consequential: the question is whether it will be used to help or harm people and society. Why is anarchy a sensible option? – mike

  2. lamplight3r says:

    Certainly, taxes are ultimately controlled by our government(s), but when taxes are discussed political leaders are confronted with the heavy influence of corporate and other well-financed lobbying. The past decade has seen a steady reduction of business taxes, both in the tax rates, themselves, and widespread concessions to particular industries or businesses.

    The Heritage Foundation reports that corporate taxes paid in 2010(191 B$) were less than 9% of total federal revenue, while individual (personal) income taxes paid (898 B$) were close to 42%(1). This conservative think tank also reports that “Payroll taxes” are the next largest source of federal revenue (40%). While this sounds like it is a business expense, the major components of Social Security and Medicare collected in 2010 were employee contributions (6.2%) and less from employers (4.2%).

    While the corporate tax rate (~ 26%) may be “the highest in the world”, reality is that deductions and expenses and “losses” and other accounting practices are actually reducing the total taxes paid by corporations towards, if not yet actually quite reaching, zero for all corporations, and not just GE or those with superior tax-avoidance accounting deparments.

    So in the future, will taxes have any usefulness in motivating the interactions between business and lives of private citizens ? It becoming apparent that corporations have essentially won the battle over business taxes, and are now setting the stage for their next onslaught. The current drum-beat of corporate lobbying has become: “Get rid of job-killing regulations”. The public responds to this jingle because it sounds plausible, it’s short enough for a yard sign or bumper sticker, and too many people are unemployed or under-employed.

    It’s often said that government (can or should) do what individuals cannot or will not do by themselves. The federal government plans for long range solutions or improvements in national problems affecting it’s citizens, and works through it’s agencies to set (minimum) standards and apply penalties for all affected businesses An easy example is the EPA and environmental issues such as air quality, water quality, waste and recycling.

    So how is EPA doing on air pollution since it’s creation in 1974 ?
    Here is a link(2) to EPA’s historical (1978-2010) data by state/county that met or “attained” the annual EPA air pollution standards, and those counties classified as “non-attainment.

    Is this only a coincidence: Air pollutants across the states were improving between 1978 and 2003, but suddenly in 2004, many/most counties started failing the EPA standards. Easy examples are OH, PA, WV. I don’t know if there’s a causal relationship or not between these results and the incoming Bush-Cheney administration. Possibly some counties would attribute their situation to unique local experiences. But across so many counties and states it seems there are just too many coincidences.

    Does such data have any influence on the way citizens vote?
    If so, how can such ideas be turned into more “local concerns” so individuals look more favorably on government, and at least do not turn against their own welfare ?

    Footnotes:
    (1)Heritage Foundation 2010 Budget Chart Book
    http://www.heritage.org/budgetchartbook/federal-revenue-sources

    (2) EPA Greenbook Attainment areas – historical listing of air pollutants
    http://www.epa.gov/airquality/greenbook/phistory_oh.html

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