By John Rogers
Intel Corp announced Thursday that it would acquire Level One Communications for $2.2bn in stock, a move that bolsters the chip giant’s position in the market for networking products. Sacramento-based Level One provides silicon connectivity products for high-speed telecom and networking applications and the deal is expected to allow Intel to become a major component supplier, providing communication equipment vendors with the silicon products needed for voice and data communications.
Intel CEO Craig Barrett said the acquisition provides us with the silicon building blocks necessary to supply the rapidly- growing demands created by the internet and e-commerce, while Mark Christensen, vice president and general manager of Intel’s Network Communications Group, added that the company sees the deal as one that will further its vision of a billion connected computers doing business on both the internet and intranets.
In a conference call with analysts late Thursday, the company stressed that it intends to become the leader in the field of communications semiconductors, going head-to-head with companies such as BroadCom and LSI Logic. An indication of the significance of the deal to Intel is that it becomes the first acquisition the company has paid for solely with its stock. In addition, it admitted that it is considering further acquisitions in the same area and Chrisntensen said: we will either buy, license, or develop any technology necessary to be number one in this industry…period.
Under the terms of the deal, each share of Level One stock will be exchanged for 0.43 shares of Intel stock and the merger will be accounted for using the purchase accounting method. Based on Thursday’s Intel closing price, the agreement values Level One at $48.75 per share, an 80% premium over its Thursday close of $27.125. Level One shares had actually fallen $5.25, or 16%, during the day’s trading after the stock was downgraded by an analyst at Adams Harkness & Hill Inc over concerns over revenue growth in the company’s June quarter. Intel, meanwhile, had slipped $1.3125 to $113.275. A total of roughly 18.6 million Intel shares will be issued to cover the transaction, which is subject to customary regulatory review, Level One stockholder approval and other normal closing conditions. The boards of both companies have already approved the agreement.
Upon completion of the merger, which is expected by the end of the second quarter, Level One will become a wholly-owned subsidiary reporting into Intel’s network communications group and all Level One employees will continue as employees of that subsidiary. Robert Pepper, Level One’s president and CEO, will join Intel as vice president of the group and general manager of the Level One components division.
The deal came about after the two companies had been working together on several programs over the past year, but the actual merger agreement was put together in a relatively short time frame, although neither company would elaborate on that topic. No immediate changes are anticipated to either company’s product line and Level One insisted that it will continue to use its existing manufacturing relationships – it intends to remain fabless – and provide its products to customers under existing agreements.
