On Semiconductor to buy Amis for $915 mln in stock

By Duncan Martell and Michele Gershberg

SAN FRANCISCO/NEW YORK (Reuters) - Power-management microchip maker On Semiconductor Corp (ONNN.O) said on Thursday it would buy Amis Holdings Inc AMIS.O in a stock deal valued at $915 million at Wednesday's close to boost sales to automotive and industrial companies.

Amis is the parent of chipmaker AMI Semiconductor Inc, whose products help manage car engines, factory automation and medical imaging. The acquisition could help boost profit margins, an analyst said, and add to earnings in 2009.

The value of semiconductors in the auto segment is increasing with the proliferation of technologies such as electronic stability control, navigation, and hybrids. This business is also a stable one for chipmakers, as design cycles are lengthy, ensuring a steady revenue stream over the life of a car model.

"Amis will immediately contribute exciting new products and capabilities in the medical and military/aerospace markets and will complement our existing automotive and industrial businesses," On Semiconductor Chief Executive Keith Jackson said.

Lehman Brothers analyst Romit Shah has estimated that semiconductor content per automobile will rise 25 percent to $350 from $280 over the next five years.

"Products for the medical and aerospace end markets are often sole-sourced and have higher gross margins," wrote Wedbush Morgan Securities Steve Park in a note to clients. He estimate the purchase could add 10 cents to his 2009 earnings-per-share estimates.

Application-specific standard products chips (ASSPs) account for about 70 percent of the analog semiconductor automotive market, Shah estimated. On Semiconductor and AMI Semiconductor as well as Atmel Corp (ATML.O) are new entrants into the highly fragmented market, allowing companies that are nimble to gain share rapidly.

The deal calls for the exchange of 1.15 On Semiconductor common shares for each Amis share, the companies said in a statement.

Based on Wednesday's closing prices, that amounts to $10.14 a share, a 38 percent premium to Amis' price at the time. Amis shares closed up 31 percent to $9.64 on Nasdaq Thursday afternoon, while On Semiconductor's shares fell 3.2 percent to $8.54.

On Semiconductor shareholders will own 74 percent of the combined company, while Amis shareholders will hold 26 percent.

Prior to the deal announcement, Amis shares were down more than 30 percent year to date, as the company cut revenue forecasts and restated financial statements due to inventory accounting errors. Meanwhile, On Semiconductor shares had gained nearly 17 percent.

On Semiconductor also said its board increased its stock buyback program to 50 million shares from 30 million.

Combined revenue for the two companies topped $2 billion over the last 12 months, while earnings before interest, taxes, depreciation and amortization amounted to more than $500 million. Amis employs about 2,800 people, while On Semiconductor has nearly 11,700 staff, according to its Web site.

On Semiconductor's Jackson will become CEO of the combined company, while Amis CEO Christine King will join an expanded board. Headquarters will remain at On Semiconductor's Phoenix offices.

On Semiconductor expects the deal to close in the first half of next year and add to earnings per share coming out of 2008. It forecast annual cost savings of more than $50 million on a pretax basis, according to executives on a conference call.