SAN FRANCISCO -- Moving to diversify its dangerously lopsided stable of customers and to play in more lucrative markets,
RF Micro Devices
announced plans to acquire a maker of wireless chips.
RFMD said Monday that it will spend $900 million in cash and stock to acquire
. The deal values Sirenza's stock at $16.64, representing a 17% premium over the closing price of Sirenza's stock on Friday.
The price looks somewhat more expensive on a sales basis, with RFMD paying 6.5 times Sirenza's $136.6 million in annual revenue last year.
RFMD said the deal creates the world's largest maker of radio frequency chips and said the two businesses are highly complementary in terms of customers, markets, products and manufacturing expertise.
"Our combination will create an RF market leader with breadth, scale and capabilities that are unrivaled," said RFMD CEO Bob Bruggeworth in a statement.
Sirenza's stock jumped 7.4%, or $1.05, to $15.22 in recent trading Monday.
Shares of RFMD were trading down 2.6%, or 16 cents, at $6.05.
Broomfield, Colo.-based Sirenza makes radio frequency chips for transmitting wireless data and posted $136.6 million in sales last year. The company's chips are used in cell-phone network infrastructure equipment, as well as in various military and aerospace applications.
Those are desirable businesses for RFMD, which sells its radio frequency chips primarily into cell-phone handsets, where profit margins tend to be lower. Last year, RFMD reported gross margin of 34.9% vs. 42.2% for Sirenza.
What's more, almost one-third of RFMD's sales are tied to handset maker
, which has stumbled badly in recent months. The troubles at Motorola caused RFMD's total
revenue to slip 11% to $211.6 million in its most recently ended quarter.
RFMD's largest customer is Finnish handset maker
, which accounted for 44% of its sales last year.
RFMD's Bruggeworth hinted at Monday's deal last month following its second-quarter results, noting in a conference call that the company was looking at acquisition opportunities that would allow it to expand its modest existing business selling chips to markets outside of handsets.
RFMD said Monday that the deal with Sirenza will add to earnings on a non-GAAP basis within six months of the transaction's close, with "modest synergies assumed."
Under the terms of the deal, each outstanding share of Sirenza's common stock will be exchanged for 1.78 shares of RFMD common stock and $5.56 in cash. RFMD will spend about $300 million of its roughly $684 million in cash and short-term investments to finance the cash portion of the acquisition.
The deal is expected to close in RFMD's fiscal third quarter, which ends on Dec. 29, pending shareholder and regulatory approval.
Both companies' boards have unanimously approved the merger, which will insert two members from Sirenza into the combined company's board.