Samsung Electronics Co. (005930), the world’s largest mobile-phone maker, agreed to buy CSR Plc (CSR)’s wireless unit for $310 million in cash, sending shares of the British chip designer to their steepest gain on record.
Samsung will pay an additional $34.4 million for new stock that would give it a 4.9 percent stake in CSR, the Cambridge, England-based company said in a statement today. The deal includes access to CSR technology and a development team of 310 people. The purchase doesn’t include CSR’s camera unit, and CSR will retain current handset products.
CSR, a supplier of location-tracking chips for Samsung’s Galaxy phones and tablets, gets 25 percent of its revenue from the handset unit which had sales of $57.8 million in the first quarter, according to Bloomberg data. Acquiring the division will help Samsung beef up its technology as it looks to replace Qualcomm Inc. (QCOM:US) chips with its own Exynos processor.
CSR’s handset business was “too small to compete with giants of the semiconductor industry,” Chief Executive Officer Joep Van Beurden said in an interview. The unit is “much more valuable to Samsung than it was to us, so it made sense to leverage that to create value for our shareholders.”
The companies’ cooperation will focus on enabling devices to better determine location deeply within buildings, van Beurden said. The deal doesn’t mean CSR plans to enter other partnerships as well, he said today, adding that he doesn’t currently expect Samsung to further increase its stake.
CSR shares climbed as much as 96.1 pence, or 44 percent, to 314.40 pence and were up 34 percent as of 2:34 p.m. in London. That’s the biggest increase since the company’s 2004 initial public offering. The stock had climbed 19 percent this year through yesterday, giving the chip designer a market value of 438 million pounds ($685 million). Samsung added 1.4 percent to close at 1,168,000 won in Seoul.
Acquirers of semiconductor makers paid on average 1.98 times revenue, according to Bloomberg data tracking 27 transactions valued at more than $250 million over the past three years. Samsung’s purchase price equals about 2 times the handset division’s sales of $151 million for last year.
CSR is “divesting a business which for them has been in decline because they lack the necessary kind of platform to really get into handsets,” said Pia Tapley, an analyst at Singer Capital Markets in London. “We see revenue declining to negligible levels but they still have been investing in it. Today’s deal means they don’t have to do that anymore, so they get rid of a lot of cost.”
Samsung, the largest maker of memory chips, display panels and mobile phones, also manufactures the A-series of processors used in Apple Inc. (AAPL:US)’s iPhones and iPads, devices that compete against its own Galaxy series of mobile devices.
Exynos, its internally developed mobile processor, is used in some versions of Samsung’s newest Galaxy III smartphone while Qualcomm’s Snapdragon is used in others.
“Samsung will strengthen its application processor platform and solidify its position as a leading semiconductor solutions provider,” it said in a separate statement.
CSR plans to return as much as $285 million to shareholders after the deal closes, which is expected at the end of this year, it said. The company posted a loss of $14 million in the first quarter, and is expected to post a $3.3 million deficit for the second quarter when it reports July 24, according to the average of six analyst estimates compiled by Bloomberg.
Samsung is being advised by Evercore Partners International LLP, while JPMorgan Cazenove is advising CSR.
Intel Corp. last week agreed to invest as much as $4.1 billion in ASML Holding NV to gain a stake and accelerate development of new chip-manufacturing technology. ASML said it’s also in talks with Samsung and Taiwan Semiconductor Manufacturing Co. to enter a similar agreement.
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