DALLAS--In a surprise move, Maxim Integrated Products Inc. today announced an agreement to acquire Dallas Semiconductor Corp. for about $2.5 billion in stock. The agreement comes two months after a heart attack killed C.V. ("Vin") Prothro, Dallas Semiconductor's president, CEO, and chairman.
Officials from both companies said Dallas Semiconductor's board of directors contacted Maxim to explore a potential acquisition shortly after Protho's unexpected death in November. Maxim president and CEO Jack Gifford said Dallas Semiconductor's wide variety of specialty products were complementary with his company's portfolio of analog and mixed-signal ICs.
"It is unfortunate that we have to benefit from such a sad event," said Gifford during a conference call with analysts today. "Maxim, as most of you know, has not planned to grow through acquisition. We have a bottoms-up plan for the '05 timeframe that will result in $3.7 billion in sales that did not include efforts through acquisition.
"The benefits that will be derived through the Dallas-Maxim merger, in our opinion, will be additional to the original plan," Gifford added.
Maxim's revenues will grow by approximately 35% and profits will increase 20% with the acquisition, Gifford said. On Wednesday, Sunnyvale, Calif.-based Maxim will release its results for the company's second fiscal quarter, ended in late December. During the company's fiscal first quarter, ended Sept. 23, Maxim reported sales of $285.1 million and a net income of $93.3 million.
Analysts asked Gifford when would Maxim increase Dallas Semiconductor's gross margins to the same levels of its profitability. Gifford responded that there was no firm timeline for improved margins, but he expected the Dallas Semiconductor subsidiary to take on Maxim's "lowest-cost producer mentality" and to eventually cut its product distribution costs. In particular, Gifford said Dallas Semiconductor will benefit from Maxim's use of offshore assembly and testing to lower costs.
Following Protho's fatal heart attack in November, Dallas Semiconductor's board began exploring alternatives to maintain shareholder value and continued growth, said Alan P. Hale, vice president of finance at the Dallas company.
"In doing so the board recognized and observed that Maxim's operations and culture were highly similar to the Dallas Semiconductor culture," said Hale during the conference call today. "Given a dual objective of preserving the culture at Dallas Semiconductor and maximizing the company's potential with respect to sales growth and earnings growth, our board determined that combining with Maxim was indeed the best path to take."
Gifford said there were no plans to lay off workers after the acquisition was completed, which is expected in the second quarter. "We believe that the cultures of the two companies are closely aligned in their focus on product proliferation and engineering innovation," Gifford said. During the conference call, Gifford said Maxim would be gaining over 230 "Maxium-like engineers," which are difficult to find in the industry.
Maxim said it will be rescinding its existing common stock repurchase program prior to consummation of the transaction. Excluding one-time acquisition-related expenses, Maxim said it expects the acquisition to be slightly accretive in its fiscal 2001 results.
Dallas Semiconductor produces a wide range of specialty ICs for communications, networking, computing, and mixed-signal applications. It broke into the market during the mid-1980s by selling battery-backed SRAM devices and clock chips. For the year 2000, Dallas Semiconductor reported sales of $517.0 million, an increase of 32% from $390.2 million in 1999. The company posted a record net income of $95.4 million last year, compared to $68.3 million in 1999.