(ATF) Japan's Renesas Electronics will acquire its German-British rival Dialog, a semiconductor specialist and Apple supplier, in a 4.9-billion-euro ($5.9-billion) deal announced by the two companies on Monday.
The Frankfurt-listed Dialog said in a statement that Renesas would pay 67.50 euros for each share between now and the end of the year, which is about 20% more than the closing price last Friday.
The two groups, which have collaborated for a number of years, both produce chips for the automobile industry, which has been hit by a semiconductor shortage.
Major car producers such as Ford, General Motors and Volkswagen have all had to trim or halt production due to the semiconductor crunch, which stems in part from outsized chip demand for game consoles and other consumer electronics during the coronavirus pandemic.
"Bringing together Renesas and Dialog will extend the combined group's reach to a broader customer base and open up additional growth potential," the two companies said in the statement.
The acquisition still needs to be approved by shareholders as well as competition authorities in various countries, AFP reported.
Shares in Renesas, one of the world’s largest suppliers of automotive chips, fell as much as 6.9% on Monday on concerns about its stretched balance sheet after a $10 billion buying spree.
Dialog's client roster also includes Samsung, Xiaomi and Panasonic.
Renesas wants to expand its reach into data centres and consumer devices, given the takeoff of the market for DDR5 memory interfaces, which are used in both data centres and analog devices for use in 5G base stations.
In 2019 it bought US-based Integrated Device Technology for $7.2 billion following the $3.2 billion acquisition of American chipmaker Intersil.
However, its debt load stood at $6.8 billion as of September 2020.
Masaya Yamasaki, an analyst at Nomura, said Renesas's long-term prospects were encouraging.
"Semiconductor demand has been recovering sharply across the board, with tightening supply-demand conditions for mainstay microcontrollers as well as consistently strong demand for power management ICs," he said.
"We envision renewed medium-term growth in earnings from H2 onwards," he added.
Dialog, for its part, is seeking to become less reliant on Apple, which accounted for two-thirds of its sales, analysts said.
Last year it acquired Adesto for $500 million as part of efforts to branch out into automotive components and battery management systems.
Renesas was formed in 2010 by a Japanese government-orchestrated merger of the chip units of Hitachi, Mitsubishi Electric and NEC.
CHIP INDUSTRY BOOM
Today's deal follows a spate of semiconductor deals in 2020 while the global chip-manufacturing industry is expected to see record revenue this year.
Dialog has been known primarily as a supplier of specialist chips for Apple, a client which accounted for 75% of its revenues in 2017 and 2018. Yet Apple said around that time that it would look to produce its own chips, which led to a fall in Dialog's stock price and questions over its future.
At a press conference on Monday, Renesas director Hidetoshi Shibata said that Dialog would continue to diversify and expand its client base with a view to reducing its dependence on Apple to around 25% by 2023.
With reporting by AFP and Reuters
This report was updated on February 8 once the takeover was confirmed.