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Depressed stock valuations and the specter of a down cycle in the chip industry helped drive ON Semiconductor Corp.'s $915 million agreement to buy chipmaker AMIS Holdings Inc. and could lead to more strategic acquisitions in 2008, analysts predicted Thursday. "We've seen significant stock declines. I think we are in an environment where there are more attractive valuations," said Robert W. Baird & Co. analyst Tristan Gerra. ON Semi's acquisition of Pocatello, Idaho-based AMIS is the latest in a series of recent deals in the chip industry. Earlier this month, Swiss chipmaker STMicroelectronics NV agreed to buy display-chip maker Genesis Microchip Inc. for $366 million. Memory chipmaker Spansion Inc. also recently announced a $368 million bid for Saifun Semiconductors Ltd. As the terms of the latest acquisitions in the chip sector show, Phoenix-based ON Semi took advantage of AMIS' soft stock valuation to buy the company at a price significantly lower than it would have been a year ago. ON Semi will issue 1.15 of its own shares for every AMIS share. Based on current prices, that works out to about $10.14 per AMIS share, which is a premium to the company's closing price Wednesday of $7.35 per share, but still well below its 52-week high of $13.05. Gerra said the acquisition would improve ON Semi's fundamentals by helping it diversify into new product areas and boost gross margins. Despite the potential strategic and financial benefits of the deals, ON Semi's shares were also well off their $13.15 per share high for the year, and were only hurt following news of the AMIS acquisition. Its shares tumbled almost 7% in late trade Thursday, to $8.20 per share. Analysts, who were generally positive about the deal, said investors were most likely reacting with surprise of the combination, which had generally not been anticipated. Integration concerns also weighed on ON Semi's share price Thursday. AMIS operates in a number of markets, such as aerospace and medical technology, where ON Semi does not have a strong presence. Although some of the company's business segments generate some of the highest margins in the chip business, Morningstar Inc. analyst Dan Su noted in a recent research report that AMIS has suffered pricing pressures recently as some of its core markets mature. Both companies suffer from pressure that is affecting the chip industry as a whole, added Wedbush Morgan Securities Inc. analyst Steve Park. Semiconductor stocks generally have declined in anticipation of a cyclical downturn early next year. That, combined with the recent weakness in credit markets that removed some would-be private equity buyers from the scene, opened the door to more opportunistic deals for strategic buyers. "It's a very good time to make acquisitions," Park said. AMIS is backed by Francisco Partners and Citigroup Venture Capital Equity Partners LP, which acquired nearly 80% of the company in 2000 in a deal that gave the target an enterprise value of more than $525 million. The pair pumped in $280 million in equity. AMIS went public in 2003, and both Francisco and CVC held a 23% stake ahead of a secondary offering in March. The company designs and makes chips for the auto, medical and military markets, two segments which ON Semi president and CEO Keith Jackson said would complement his company's own automotive and industrials business. AMIS counts among its customers General Electric Co., Hewlett-Packard Co. and Medtronic Inc. AMIS is the parent company of AMI Semiconductor Inc. ON Semi also said Thursday it would expand its share repurchase program to 50 million from 30 million, effectively enabling it to buy back half of the shares issued in the deal over three years.  Deal Video
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