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Actionable news in LLTC: Linear Technology Corporation,

Citi Sees Analog Devices Shares As Fully Valued, Positive On Linear Acquisition

Analog Devices, Inc. ADI has agreed to acquire Linear Technology Corporation LLTC in a cash and stock transaction that values the latter at $14.8 billion. Citi’s Christopher Danely downgraded the rating on Analog Devices from Buy to Neutral, while raising the price target from $60 to $68.

Noting that the deal is expected to close in 1H17, analyst Christopher Danely commented, “We Love the Deal But Not a $68 ADI Stock.” He explained that Analog Devices’ stock appears fully valued even after including Linear’s contribution to EPS.

The price, at about $62 per share, represents a premium of 28 percent to Linear’s prior closing price. Analog Devices plans to fund the purchase with cash from its balance sheet, $7.3 billion in new debt, and the issuance of 58.0 million new shares, Danely mentioned.

Linear Is The Ferrari Of Analog

“Linear has the highest margins in semiconductors with gross margins of 76.2% and operating margins of 46.5% due to its expertise in high-end analog. We believe Linear’s products are complementary to ADI’s existing products as Linear specializes in a different area of analog than ADI,” the analyst wrote.

Danely estimated the deal to be EPS accretive by 23 percent or $0.76, given $150.0 million in synergies.

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DateFirmActionFromTo
Jul 2016Morgan StanleyUpgradesEqual-weightOverweight
Jul 2016CitigroupDowngradesBuyNeutral
Jul 2016OppenheimerUpgradesMarket PerformOutperform

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