Mediatek plans to acquire 40% to 48% of MStar through the offer
Taiwanese semiconductor giant MediaTek has agreed to acquire smaller rival MStar Semiconductor in a combination of stock and cash deal worth $3.8bn.
MediaTek is offering 0.794 shares and NT$1 in cash for every MStar share and will buy 212 million to 254 million MStar shares through a tender offer before going ahead with the merger process in early 2013.
MediaTek and MStar that both possess competitive advantages in the fields of wireless communication and digital home, aim to target the same two key markets to boost presence in the chip market and face competition from other players like Qualcomm.
MediaTek chairman MK Tsai said in light of the recent trends of industry consolidation, this transaction is expected to become a new milestone for the IC design industry.
"Facing intense worldwide competition and fast-changing market dynamics, we believe that the combined company will be in a strong position to compete and will further elevate MediaTek’s global competitiveness," he added.
The deal is also expected to enable MediaTek concentrate more on its smartphones business than feature phones.
An ABI Research in March revealed that lower cost smartphones will overtake feature phones by 2016 and reach 170 million from 45 million in 2012.
The research firm also revealed that almost all smartphones will feature touchscreens by 2016.
MediaTek provides system-on-a-chip applications for wireless communication, high-definition digital TV, optical storage, and high-resolution DVD players, among other electronics.
MStar was formed in 2002 and had recorded a revenue of $1.2bn in 2011 with majority of its revenue coming from chips used in televisions.
According to IC Insights, MediaTek has moved into the top 20 list of semiconductor sales leaders, ranking number six while MStar occupied number 11 position in 2011.
The current deal would be the fifth-largest semiconductor acquisition worldwide in the last decade and the largest in Asia over that period, according to Bloomberg.
MStar chairman Wayne Liang expects to see a more efficient allocation of both companies’ resources after the deal.
"Furthermore, we hope this transaction will pave the way for industry consolidation which will enhance the global competitiveness of Asian IC design companies," Wayne added.