AMS in Talks to Buy Dialog to Create $4.7 Billion Chipmaker

Jun 26, 2014 12:12 pm ET

(Updates with closing share prices in fifth paragraph.)

June 26 (Bloomberg) -- AMS AG is in talks to acquire Dialog Semiconductor Plc to create a mobile smartphone-focused European chipmaker with a market value of about $4.7 billion.

AMS, which makes chips used to adjust brightness and colors on displays, will have to announce under U.K. takeover rules whether it will proceed with an offer by July 24, the Unterpremstaetten, Austria-based company said today. The chipmakers said in separate releases they are in preliminary talks to combine their businesses.

A merger would help AMS and Kirchheim, Germany-based Dialog, whose chips help manage power consumption, pool resources as smartphone demand rises and devices from cars and traffic lights to vending machines become connected, boosting demand for semiconductors. Both companies supply chips to Apple Inc., the maker of the iPhone and iPad.

“It makes a lot of sense,” said Lee Simpson, an analyst at Jefferies LLC in London. “You end up with a European chip player of decent size. It’s driven by dynamics on the end market, namely by the Internet of things, automotive and smartphones.

Dialog climbed 2 percent to 25.55 euros at the close of trading in Frankfurt, valuing the company at 1.7 billion euros ($2.3 billion). It also has a London listing. AMS declined

1.4 percent to 143.60 Swiss francs in Zurich, giving the company a market value of 2.1 billion francs ($2.4 billion). Shares of both companies have more than doubled over the past 12 months.

Apple Dependence

The chipmakers will probably have combined revenue of $1.7 billion this year, an increase of 21 percent from 2013, according to analysts’ estimates compiled by Bloomberg.

The companies’ products are complementary and a combination would let them offer a range of products and share development costs while reducing dependence on Apple, said Commerzbank AG analyst Florian Treisch. A deal could lift earnings before interest and taxes, excluding some items, by 15 percent in 2015, he said.

Apple accounts for about 80 percent of Dialog’s revenue, and for 23 percent of sales at AMS, data compiled by Bloomberg show. The sales share would be 61 percent for the combined company.

Out of an estimated $200 value of semiconductors in an iPhone, AMS and Dialog contribute about $3.50, Treisch said. That means Apple probably won’t try to block a deal, he said.

Representatives for AMS and Dialog declined to comment beyond the statements.

More than $10 billion of mergers and acquisitions in the semiconductor industry have been announced this year, led by Analog Devices Inc.’s takeover of Hittite Microwave Corp. for $2 billion and RF Micro Devices Inc.’s purchase of TriQuint Semiconductor Inc. for about $1.5 billion, according to data compiled by Bloomberg.

--With assistance from Robert Gold in Princeton.