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Tessera Buys DTS, Eyes Expansion in Audio Solutions Market


Tessera Technologies Inc. TSRA has decided to acquire leading audio solutions provider DTS Inc. DTSI for $850 million. It’s an all-cash deal per which DTS will receive $42.50 per share at a 28% premium to its 30-day volume weighted average price as of Sep 19, 2016.

The combined entity will have a new name and stock symbol following the closure of the transaction. Tessera is planning to finance the acquisition with $600 million of debt from RBC Capital Markets and the rest with the available cash on hand.

Expectations from the Acquisition

Tessera expects the deal to be immediately accretive to its earnings per share and free cash flow. It is also expected that the combined entity will realize $15 million in annualized cost synergies within 12 to 18 months of the closure of transaction.

Revenue synergies are expected to be achieved once the combined company reaches an optimum level of customer channel and technology utilization and expands addressable markets.

The combined company will keep its balance sheet strong by maintaining pro forma cash and investments of around $100 million. It will also try to maintain an optimum level of free cash flow available for funding quarterly dividends, pay debts, make investments and finance future acquisitions.


Emergence of a Stronger Entity Following the Merger

The acquisition will make Tessera one of the leading product and technology licensing companies globally. Tessera expects the combined company to generate pro forma revenues of around $450 million in 2016, half of which will come from product licensing.

We believe that the acquisition will help Tessera fully leverage DTS’ capabilities to develop next-generation imaging, audio and semiconductor packaging technologies and thereby further strengthen its position in the end markets.

Tessera CEO Tom Lacey stated, “Our acquisition of DTS’s talented team and industry-leading products will represent a transformational step in the execution of Tessera’s strategic vision, with exciting new product development and marketing opportunities.”

Zacks Rank and Stocks to Consider

Currently, Tessera has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader technology sector include Facebook, Inc. FB and LinkedIn Corporation LNKD, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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