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UPDATE 6-Renesas boosts power and connectivity prowess with $6 bln Dialog deal

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Tim Kelly and Douglas Busvine
·3 min read
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* All-cash deal aims to capitalise on global technologyshift

* Dialog CEO says board recommended offer after extensivetalks

* Renesas boss says deal will bring margin and earningsuplift(Updates with analyst, deal details, other interest in Dialog)

By Tim Kelly and Douglas Busvine

TOKYO/BERLIN, Feb 8 (Reuters) - Renesas Electronics Corphas agreed to buy Dialog Semiconductor for4.9 billion euros ($5.9 billion) in cash, boosting its positionin low-power technology and connectivity across smart devices,cars and industry.

One of the world's biggest auto chipmakers, Renesas aims tocapitalise on technology shifts that are putting more electricvehicles on the streets with assisted driving technology whilethe rollout of 5G networks is connecting billions of devices tothe so-called Internet of Things.

"The transaction we announced today represents our nextimportant step in catapulting Renesas’s growth plan,” theJapanese company's president and CEO, Hidetoshi Shibata, said onMonday of the latest in a string of acquisitions.

Renesas offered 67.50 euros a share for Apple Incsupplier Dialog, representing a 20% premium to Friday's closingprice and a 52% mark-up to a weighted three-month average.

The Frankfurt-listed shares in Anglo-German chip designerDialog were up 16% at 65.28 euros in morning trade, just shy ofthe agreed sale price.

"Power management is the DNA of Dialog’s intellectualproperty," Mirabaud Securities analyst Neil Campling said afterthe deal was announced.

"As we move forward in a world increasingly focused onbattery technology, EV vehicles and leveraging the ‘powersucking’ capabilities of 5G in the smart industrial future -power, power efficiency and power management are crucial."

British-based Dialog had confirmed on Sunday that it hadreceived an offer from Renesas after media reports of interestfrom the Japanese company and Franco-Italian chipmakerSTMicroelectronics.

Dialog CEO Jalal Bagherli said its board had recommended theRenesas offer after extensive discussions, adding that it issubject to the UK takeover code and would consider anycounter-bid.

STMicroelectronics declined to comment.

WHEELS AND DEALS

Renesas and Dialog had agreed in August to cooperate inautomotive computing platforms, shortly before a global shortageof semiconductors forced some carmakers to curb production.

The Japanese group, which has a 30% market share formicrocontrollers used in cars, bought U.S. chip designerIntegrated Device Technology Inc for $6.7 billion in 2018, theyear after its $3.2 billion purchase of U.S. chipmaker Intersil.

Renesas has filed to issue up to 270 billion yen ($2.6billion) in new shares to fund its latest deal, which Shibatasaid would boost earnings immediately on closing. He forecast animmediate gross margin uplift of 0.6 percentage points and arise of 0.4 percentage points in core earnings.

Dialog specialises in power-management chips and low-energyBluetooth products used in fitness trackers and cordlessearphones.

It agreed in 2018 to transfer people and patents involved indesigning the main power-management chip used in iPhones toApple in a $600 million deal that left it a smaller and morebroad-based business.

“We have successfully executed on a diversification strategythat positions Dialog for high growth,” said Dialog's Bagherli,praising its fit with Renesas's embedded computing, analogue andpower portfolio.

Shares in Renesas fell as much as 6.9% before closing 3.6%down, lagging a 2.1% gain in the broader market, onconcerns that it would borrow too much to pay for the deal. CEOShibata reassured analysts that its leverage ratio would peak at3.5 times core earnings after the deal but return to a multipleof 1 over the next two years.

Renesas was advised by Nomura and law firms Covington &Burling and Nagashima Ohno & Tsunematsu, while JPMorgan,Qatalyst Partners and Linklaters worked with Dialog.($1 = 0.8315 euros)

(Writing by Douglas BusvineAdditional reporting by Mathieu RosemainEditing by Kirsten Donovan and David Goodman)