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Texas Instruments To Buy National Semiconductor For $6.5 Billion

Texas Instruments National Semiconductor

By JORDAN ROBERTSON   04/ 4/11 07:49 PM ET   AP

SAN FRANCISCO -- Texas Instruments Inc. is buying National Semiconductor for $6.5 billion in a marriage of two of the world's premier makers of analog chips, which are widely used in electronics to transform signals such as sound into digital form that computers can understand.

In scooping up National Semiconductor, TI is getting a storied Silicon Valley company whose history stretches back more than 50 years and is known for its power-management chips.

The deal is the latest example of consolidation among big players in the technology world as trends such as the explosion in smartphones have shaken up the competitive landscape. Longtime foes have joined forces while friendships have frayed as the boundaries between companies' business lines have blurred.

TI has agreed to pay $25 per share. The all-cash transaction represents a 78 percent premium over National Semiconductor's stock price before the deal was announced.

TI and National Semiconductor have been long-running rivals.

TI, a leader in chips for cellphones, said swallowing National Semiconductor would be good for both companies' sales. TI's CEO Rich Templeton said the combined companies' sales team will be 10 times bigger than National Semiconductor's current sales force.

"This acquisition is about strength and growth," Templeton said in a statement. "National has an excellent development team, and its products combined with our own can offer customers an analog portfolio of unmatched depth and breadth."

Dallas-based TI noted that it makes some 30,000 types of analog chips, while National, based in Santa Clara, Calif., makes 12,000. TI said that it owned about 14 percent of the $42 billion analog market last year, while National Semiconductor owned about 3 percent.

TI said the analog business will rise to about 50 percent of the company's overall revenue when the deal closes, which TI expects will be within the next six to nine months. Last year, they made up about 43 percent of the company's $14 billion in revenue. The rest was made up of various different kinds of chips.

Ashok Kumar, an analyst with Collins Stewart, said he expects the deal will clear antitrust scrutiny because despite consolidation in the analog chip market, "the market is pretty brutal" and pricing is aggressive.

He said Texas Instruments' recent decision to exit the mobile-phone "baseband" business (chips that help phones connect to cellular networks) has put pressure on TI to find ways to replace the lost revenue. The baseband segment brought in $1.7 billion in revenue last year, and is expected to go to zero by next year. TI will continue to make "applications processors," a different kind of chip that acts as the central brain of cellphones.

Kumar called the deal "a match of mutual necessity – for National more than TI."

"National has been lost for quite some time – they didn't appear to have critical share in any market of consequence," he said. "TI is not without its own set of problems, but they can more than survive. But the issue they're facing longer-term is they're being squeezed out of the handset in the post-PC environment."

TI executives have touted the untapped opportunities for TI in the analog market as a key reason to expand in that area while shrinking parts of the wireless business.

Shares of National Semiconductor surged $10.20, or 72.5 percent, to $24.27 in extended trading, after the deal was announced. TI shares fell 65 cents, or 1.9 percent, to $33.46. In the regular session National Semiconductor shares lost 16 cents to close at $14.07, while TI lost 12 cents to $34.11.

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Filed by Catharine Smith  |