* Infineon says $40 per share offer for U.S. firm is
* Says deal to begin to boost Infineon earnings by end of
* Says margin improvements will show up in second yr after
(Changes dateline, byline, adds details of products and
markets, profit margin impact on Infineon)
By Jens Hack and Maria Sheahan
MUNICH/FRANKFURT, Aug 20 Merger-shy German
chipmaker Infineon has agreed to buy California-based
International Rectifier for about $3 billion in cash,
Infineon said on Wednesday, in its biggest-ever acquisition.
Terms call for it to pay $40 per share for the U.S. company,
a maker of power-management circuits used in everything from
computers to appliances, automobiles, lighting and aircraft.
Shares of International Rectifier rose as high as $39.50
following the news. At 1800 GMT, the stock was trading at
$39.06, a gain of $12.51 or 47 percent on the day on the New
York Stock Exchange.
Infineon shares fell 1.72 percent in after-hours trade on
the Frankfurt exchange. The stock had closed down 1.38 percent
ahead of the announcement, while those of several possible
targets, including International Rectifier rose, following
reports that Infineon was preparing to buy a U.S. chipmaker.
Infineon, whose chips activate car airbags, enable cruise
control, manage power supplies and cut vehicle emissions, has
shunned major takeovers since it was spun off from engineering
conglomerate Siemens in 1999.
It struggled in the subsequent years to turn a profit in its
slumping memory-chip business, which it then disposed of.
Infineon said the merger would complement its own range of
high-powered chips with International Rectifier's low-power,
energy efficient chips. Infineon said its combined market share
of the fragmented power semiconductor market would grow to 17.2
percent from 11.8 percent as a standalone company, based on 2012
revenue figures. Toshiba and Mitsubishi would
have just 7 percent of the market on the same basis.
The merger will help the combined company cut operating
costs and increase the utilisation of its heavy investment in
300 millimetre wafer production plants in Dresden and Villach,
Austria. It will also boost Infineon's presence in U.S. and
Asian markets outside Korea, where the company is already
active, Infineon said.
PRESSURE FOR A DEAL
For months, shareholders have been calling on Chief
Executive Reinhard Ploss, who has been at the helm since 2012,
to use Infineon's cash pile of more than 2 billion euros ($2.7
billion) to make acquisitions, or return the money to investors.
On July 30, Infineon board member Arunjai Mittal told
analysts the group would pick its target according to strategic
fit, how difficult a post-merger integration would be and how
much the buy would add to Infineon's sales and profit.
UBS analysts at the time interpreted his statement to imply
that Infineon would look for a target that it could pay for
largely with cash on hand, that has a high free float and an
operating margin of at least the 15 percent it has targeted.
Infineon said it will fund the transaction using existing
cash on hand and credit facilities of 1.5 billion euros, which
have been fully underwritten by Bank of America Merrill Lynch
and Citigroup, which acted as financial advisors to Infineon.
JPMorgan is acting as exclusive financial advisor to
Kirkland & Ellis and Freshfields Bruckhaus Deringer are
acting as counsel for Infineon and Fried, Frank, Harris, Shriver
& Jacobson is acting as counsel for International Rectifier.
Infineon said the acquisition is expected to start boosting
its reported earnings per share by the end of the fiscal year in
which the deal closes. But it cautioned that Rectifier, which is
in the middle of an existing cost restructuring programme, must
continue to boost its profit margins from around 8 percent now.
By the second full fiscal year after closing the deal -
sometime in 2017, Infineon said it expected that International
Rectifier's profit margins would be "at least in line with"
Infineon's projected multi-year margin targets of 15 percent.
The deal has been approved by International Rectifier's
board and is expected to close late in 2014 or early in 2015,
subject to regulatory approvals, Infineon said.
($1 = 0.7528 euro)
(Writing by Eric Auchard in Vienna; Additional reporting by
Alexander Hübner in Frankfurt, Joern Poltz in Munich, Victoria
Bryan in Berlin and Supantha Mukherjee in Bangalore; Editing by
Victoria Bryan, Pravin Char and David Evans)