Xircom (Nasdaq: XIRC) shares surged after Intel (Nasdaq: INTC) announced it would snap up the company for $748 million. Intel analysts dismissed the deal and questioned the premium.
Xircom, a maker of network adapters and modems, was up 6.5 to 24.56 Tuesday afternoon. Intel shares were off 0.75 to 31.38 following Monday's announcement which coincided with Xircom's disappointing first-quarter results.
Intel (Nasdaq: INTC) will buy Xircom for about $25 per share in an all-cash tender offer that will commence within 10 working days. It will also assume all existing vested and unvested employee options.
The acquisition will strengthen Intel's mobile business, especially in its technology for linking mobile computing devices to corporate wired and wireless networks, the company said.
The deal is expected to be completed in the first quarter of this year, when Xircom will become a wholly owned subsidiary of Intel as part of its Network Communications Group.
Dan Scovel of Needham noted the timing of the deal was odd; "the premium Intel's paying is not a lot, but it probably would have been less if the Xircom (quarterly) announcement would have gone out first."
Xircom on Monday posted a loss of $2.46 million, or 8 cents a share, on sales of $120.1 million for the first quarter ended Dec. 31. Earnings excluding an acquisition charge were a penny a share, well below the 14 cents a share that First Call's consensus was predicting.
"This doesn't seem to be a strategic move. It's more tactical. I don't view it as a big deal," said Prudential Securities analyst Hans Mosesmann. He said Xircom's technology for PDA fits in well with Intel's wireless business.
Scovel also said the deal wasn't an important strategic move for Intel, and just helps it make further inroads in the networking space.
Intel will also report its fourth-quarter earnings after Tuesday's bell. At best, the chipmaker is expected to hit reduced expectations in the quarter.
Analysts are expecting total sales in the neighborhood of $8.7 billion, roughly flat with the third quarter.