ALTR - The reported $54.00 cash offer is a 51% price premium to the $35.88 prior 20 day average close price and a 10% price premium to the five year high price of $49.25 (2Q11). FSL, a mostly stock / some cash merger with NXPI, is trading near $41.25/share, a 25% premium to its adjusted $33/share pre-deal average closing price (post-earnings, pre-speculation). The FSL 2016E deal valuation multiples ($12.6B market cap, 17.6B EV) are 3.4x EV/Revs ($5.2B, up 5.5% YoY), 13.7x EV/EBITDA ($1.28B, up 8.5% YoY, 24% margin), 16.1x P/E ($2.57 EPS, up 22% YoY) and 1.3x PEG (15% LT growth rate).
At the prior 20 day price, ALTR 2016E valuation multiples were 4.5x EV/Revs ($2.14B, up 7.5% YoY), 13.3x EV/EBITDA ($732M, up 15.7% YoY, 34% margin) and 18.7x P/E ($1.92, up 18.5% YoY, 10% tax rate). ALTR a $54/share ($16.3B market cap, $15.2B EV) implies 2016E valuation multiples of 7.1x EV/Revs, 20.7x EV/EBITDA, 28x P/E and 2.45 PEG (11.5% LT growth rate); assuming $200M synergies (9% revenues), the adjusted valuation multiples are 16.3x EV/EBITDA ($932M, 44% margin), 21.4x P/E ($2.52 EPS) and 1.9 PEG.
The INTC 2016E valuation multiples ($32/share, $151B market cap, $169B EV) are 2.6x EV/Revs ($58.2B, up 5% YoY), 6.0x EV/EBITDA ($25.4B, up 9.5% YoY, 44% margin), 13x P/E ($2.47 EPS, up 12.8% YoY, 26% tax rate) and 1.6x PEG (8.2% LT growth rate). Assuming 4.5% deal interest expense and $200M synergies, a $54/share ALTR deal price would be 2% accretive to INTC 2016E P/F $2.52 EPS; debt leverage would be 1.3x 2015E EBITDA (0.6x including P/F adjusted cash). A $58/share deal (5% deal interest cost) would produce INTC 2016E P/F $2.49 EPS (1% accretive). AVGO, mentioned as an alternative ALTR suitor, has 2016E valuation multiples ($128/share, $32.8B market cap, $35.8B EV) of 4.8x EV/Revs ($7.4B, up 8.8% YoY), 9.5x EV/EBITDA ($3.764B, up 8.7% YoY, 51% margin), 14.2x P/E ($9.04 EPS, up 6.7% YoY, 10% tax rate) and 0.7x PEG (20.7% LT growth rate).
While a 51% price premium for ALTR seems more than adequate, the issue may be the 100% cash consideration instead of a stock /cash consideration that AVGO would possibly offer (due to its smaller relative market cap to INTC). The AVGO valuation multiples are above those of INTC but still well below those of ALTR, thus any price rerating would be driven by the expected deal synergies. AVGO could offer a slightly above market premium for ALTR shares (similar to the FSL/NXPI transaction) and then let an increase in its stock price valuation drive the total deal value. The NXPI share price is up 20% since announcing the FSL deal. A similar deal structure (at a ~$46 stated value based on 0.3 AVGO shares plus $7.60 cash) and 20% AVGO price appreciation ($153.50/share) implies a $53.65 deal value. A 10%-15% AVGO price gain implies ~$50-$52/share deal value, which still may be more attractive to ALTR given the potential upside of the combined company plus the tax efficiency of mostly stock consideration. Then again, ALTR’s rejection (after reportedly talking to INTC for months) may just be a tactic to squeeze the buyer for a higher cash consideration.