NEW YORK (TheStreet) -- Microsemi (MSCC) stock is falling by 7.84% to $33.37 on heavy trading volume on Tuesday morning, after the company announced it was buying PMC-Sierra (PMCS) for $2.5 billion in cash and stock.
The semiconductor company will buy PMC for a 77.4% premium to the closing price of PMC's stock as of September 30.
The acquisition will benefit Microsemi by increasing its scale and diversifying its market exposure, the company said.
Microsemi projects the acquisition will result in earnings accretion of about 60 cents per share in the year after the deal closes.
"We are pleased PMC has accepted our compelling strategic offer, which clearly benefits shareholders of both Microsemi and PMC," CEO James Peterson said in a statement. "We can now shift our focus to realizing the significant synergies identified during our comprehensive analysis. As we have previously stated, this acquisition will provide Microsemi with a leading position in high performance and scalable storage solutions, while also adding a complementary portfolio of high-value communications products."
So far today, 1.53 million shares of Microsemi have traded, versus its 30-day average of about 788,000 shares.
Separately, TheStreet Ratings team rates MICROSEMI CORP as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:
We rate MICROSEMI CORP (MSCC) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, expanding profit margins and notable return on equity. We feel its strengths outweigh the fact that the company has had sub par growth in net income.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 10.9%. Since the same quarter one year prior, revenues slightly increased by 8.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- MSCC's debt-to-equity ratio of 0.82 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Despite the fact that MSCC's debt-to-equity ratio is mixed in its results, the company's quick ratio of 2.20 is high and demonstrates strong liquidity.
- Compared to its closing price of one year ago, MSCC's share price has jumped by 38.55%, exceeding the performance of the broader market during that same time frame. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
- MICROSEMI CORP's earnings per share declined by 23.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, MICROSEMI CORP increased its bottom line by earning $0.88 versus $0.23 in the prior year. This year, the market expects an improvement in earnings ($3.20 versus $0.88).
- 45.44% is the gross profit margin for MICROSEMI CORP which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, MSCC's net profit margin of 7.69% is significantly lower than the industry average.
- You can view the full analysis from the report here: MSCC
Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.