Maxim buys Dallas Semi for $2.5 bln

Maxim Integrated Products Inc. (Nasdaq: MXIM) snapped up Dallas Semiconductor Corp. (NYSE: DS) Monday for about $2.5 billion in stock. Analysts said the acquisition is a good deal for Maxim, but some were surprised that Dallas Semiconductor didn't hold out to fetch a higher price.

Shares in Dallas Semiconductor, a provider of specialty semiconductors, were up $8.5 to $35 Monday. Shares of Maxim, a maker of integrated circuits (ICs), were off $4.93 to $58.56. The Maxim deal values Dallas shares at around $38 to $39 a share.

Based on Maxim's closing price on Friday, each outstanding share of Dallas Semiconductor would be exchanged for 0.62 of a share of Maxim, and Maxim would issue about $2.5 billion of stock for all outstanding shares and options of Dallas Semiconductor.

Analysts said the deal was good for both parties, but some suggested Maxim got too good of a deal. Dallas Semiconductor shares have been rattled by the sudden death of the company's CEO in November and a recent profit warning.

Dallas Semi met lowered estimates for its fourth quarter on Jan. 18, after having warned in December that it would miss analysts' estimates. It reported strong revenue for the year, but also said that customer inventory corrections could dent sales into the first and second quarter of 2001.

Aside from the short-term problems, analysts argued Dallas Semiconductor was a good long-term value.

"This is a company that has been in business for 17 years and has never had to go back to the capital markets, it has no debt -- these guys are a cash flow machine," said Eric Boyce of Baldwin Anthony McIntyre. Boyce said Maxim bought Dallas Semiconductor for a song. He said he had expected Dallas Semiconductor to be acquired, but figured the company would find a new CEO and post a few good quarters before selling out.

Robertson Stephens analyst Tore Svanberg, who covers both companies, said that even without a CEO, Maxim is getting a strong management team. He doubted that Dallas Semi was discounted for lack of a CEO and said the deal was good for both parties.

Svanberg said he expects the acquisition should add slightly to his estimates of $305 million in revenue and 30 cents a share in earnings for Maxim's next quarter.

Gerard Klauer Mattison & Co. analyst John Geraghty also said that Maxim will "hopefully" be able to provide some outlook on Dallas' business for the first and second quarters in a conference call later today.

Company officials had said in a release that plans to leverage Dallas Semiconductor's complementary product lines will be bring more visibility to Dallas' business in the domestic and international markets.

Excluding one-time acquisition-related expenses, Maxim said it expects the deal to add slightly to its fiscal 2001 results. Analysts are expected a profit of 31 cents a share in Maxim's second quarter according to First Call's consensus.

Those predictions, however, should "be taken with a grain of salt," said Boyce.

The actual exchange ratio of the merger will be determined by a formula based on Maxim's average closing price during a 10-day trading period ending two days prior to closing. The number of Maxim share equivalents will range from 40 million -- if its average closing price is $61 or more -- to 42 million share -- if its average closing price is $52 or less.

The deal is expected to close during the second quarter of calendar 2001. It will be accounted for as a pooling-of-interests and qualify as a tax-free reorganization. Maxim will end its stock repurchase program prior to the close of the deal.