ARM Holdings (ARMH) Drops but Still Takeover Target

The share price of ARM Holdings Plc (NASDAQ:ARM)’s stock has soared so quickly that the designer of chips that help power Apple Inc. (NASDAQ:AAPL)’s iPhone is now the most expensive takeover target in the semiconductor industry since 2006.

ARM’s shares rose 151 percent in the past 12 months through yesterday, about double the next best performance in the MSCI World Information Technology Index, as demand surged for semiconductors in mobile devices such as iPhones and iPads and speculation grew that Apple, Oracle Corp. (NASDAQ:ORCL) or Intel Corp. (NASDAQ:INTC) will try to buy the Cambridge, England-based company. The gains left ARM valued at 59 times earnings before interest, taxes, depreciation and amortization, more than the multiple for any semiconductor takeover since ATI Technologies Inc. in 2006, according to data compiled by Bloomberg that includes net debt.

While increasing shipments of mobile handsets helped push ARM’s gross margin to the highest level of any global semiconductor company, a takeover would now cost at least $11.3 billion, in line with the combined total spent in all chip acquisitions in the past year, data compiled by Bloomberg show. Even as technology companies sit on $276 billion in cash, ARM’s Chief Executive Officer Warren East says any deal would destroy shareholder value because the chip designer’s success stems from its neutrality.

“If anyone was interested in buying ARM, why would they have waited, when you could have had it” cheaper before, said Paul Morland, an analyst at Peel Hunt in London. “ARM has done better than people expected, but not 10 times better. The bulls on it are looking out 10 years to the growth of mobile devices.”




Source