Atheros stock leaps on Qualcomm deal talk

SAN FRANCISCO (Reuters) - Atheros Communications Inc ATHR.O stock rose 19 percent after a report that Qualcomm Inc QCOM.O is near a deal to buy the company, which would bolster its share of semiconductors in smartphones and tablets.

Qualcomm could soon buy Atheros, whose chips are used in PCs, handsets and routers, for around $45 a share, or $3.5 billion, the New York Times reported on Tuesday.

Neither company could immediately be reached for comment.

With products like its Snapdragon processor, Qualcomm -- with around $10 billion in cash -- is already a major player in making microchips that handle data crunching and voice communication in smartphones.

San Jose, California-based Atheros makes chips for Bluetooth, GPS and wireless networks that are also used in many mobile devices, a market expected to explode in 2011 with new tablet computer offerings to compete against Apple's AAPL.O iPad.

Atheros’ shares closed up 19 percent at $44 and rose to $44.24 in after-hours trading.

At $3.5 billion, Atheros would be bought at about 15 times earnings before interest, taxes, depreciation and amortization. Qualcomm currently trades at around 19 times EBITDA, so the transaction would not be materially dilutive to earnings, said Reuters Insider investment banking analyst Richard Lee.

Roth Capital Partners analyst Arnab Chanda said the value of Atheros, which has around $500 million in cash of its own, would likely rise as the mobile market expands.

“In a year Atheros is going to be lot more valuable because it’s going to see the benefits of some of the diversification it has invested in,” Chanda said.

Gleacher & Co analyst Doug Freedman said it is unlikely other companies would step in to outbid Qualcomm.

"The only one that could potentially step up is Intel Corp INTC.O and I see the likelihood as low," he said.

The shares of San Diego, California-based Qualcomm closed 1.6 percent higher at $50.97.

Atheros, with revenue of $247 million in the third quarter, has been diversifying away from its PC original equipment manufacturer business.

Reporting by Noel Randewich; Editing by Bernard Orr, Phil Berlowitz