merger talks off between Intel (INTC) and Altera (ALTR)

CNBC is reporting that INTC has broken off takeover talks with ALTR .  ALTR has supposedly rejected an offer of $50+ per share.

If ALTR’s value were not in its software engineers, that is, intellectual property that drives out of the parking lot every evening, we’d expect that the situation would develop along two parallel lines:

1.  figuring (correctly, in my view) that shareholders who are not part of ALTR’s top management would jump at the chance to sell their stock to INTC for $50, INTC might consider a hostile bid (that is, one not endorsed by ALTR’s CEO), and

2.  ALTR would decline on the news, but remain above its new-leak level as Wall Street would expect, at worst, another suitor to emerge sooner or later.

 

I don’t think the first will happen in this case.  INTC doesn’t want buildings, land and equipment.  It wants researchers–who might either decamp to work for competitors or even form their own independent software firm if they felt they were being forced against their wills to work for INTC.   Management likely wouldn’t stand in anyone’s way.  Therefore, making a hostile bid risks ending up with an empty shell.

On the other hand, I don’t expect another suitor.  It seems to me that INTC is uniquely able to use ALTR’s intellectual property to create new value  …and I found myself struggling to justify a bid price, even with INTC as the buyer, over $40 a share.

 

Still, ALTR may not simply drop back to the mid-$30 range.

If we assume that INTC knows what it’s doing, then it thinks that an INTC/ALTR partnership would have transformative value that would make ALTR worth something like double the pre-bid market price (otherwise, why bid $50+? …the other alternative, which I’ve ruled out in the first clause of this paragraph, is that INTC is either foolish or desperate).

INTC sought to capture most of the upside by buying ALTR.  That hasn’t worked.  Presumably, when emotions clear and heads cool, INTC will try to work out a different arrangement (joint venture?) in which ALTR will retain its independence and take a larger amount of any upside for itself.

If this is correct, a big selloff in ALTR over the coming weeks might offer an interesting opportunity to buy.

 

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