Analog Devices Inc said it would buy Hittite Microwave Corp in a deal valued at $2 billion to strengthen its radio frequency (RF) and signal conversion chip offerings.
Analog, which makes chips that help translate pressure, temperature and sound into digital signal, said the acquisition would boost its growth in the industrial, communication gear and automotive markets.
"(The deal) really builds out the core competency (Analog) will have in very high frequency RF and microwave used in high-end base stations, microwave backhaul equipment and satellite equipment," Stifel Nicolaus & Co analyst Tore Svanberg said.
Hittite has a stronger growth profile than Analog, Svanberg said.
Analog will pay $78 per share in cash, which represents a premium of about 29 percent to Hittite's Friday close of $60.56 per share.
Stephens Inc analyst Harsh Kumar said the deal value was high as Hittite's stock already trades at a premium and the company's growth could be hurt by competition down the line.
Hittite had cash and short-term investments of $492.4 million and no debt as of March 31, according to Thomson Reuters data, giving the deal an equity value of $2.45 billion.
Analog said it expected the deal to boost its adjusted profit by about 4-6 percent in the fourth quarter ending November.
"In the fourth quarter, our combined gross and operating margins should improve slightly due to Hittite's higher margin profile," Analog Chief Financial Officer David Zinsner said on a conference call.
Analog said it expected to fund the acquisition through cash on hand and short-term debt.
The transaction is expected to close by the end of the third quarter.
Credit Suisse was Analog's financial adviser for the deal, while Deutsche Bank advised Hittite.
Norwood, Massachusetts-based Analog also reaffirmed its revenue and adjusted profit forecast for the third quarter ending August.
The company forecast an adjusted profit of 60-64 cents per share.
Analog said it expected revenue to rise by 1-5 percent from the second quarter, which translates into $701.4 million-$729.2 million.
Analysts on average were expecting a profit of 63 cents per share on revenue of $716.09 million, according to Thomson Reuters I/B/E/S.
Hittite's shares were up 28.6 percent at $77.90 in late morning trading on the Nasdaq on Monday. Analog's shares were up about 6 percent at $55.78.
(Editing by Kirti Pandey)