DTS Inc. (NASDAQ:DTSI) shares are up nearly 23% in early trading Tuesday, after the audio equipment maker announced that it has entered into a definitive agreement with Tessera Technologies, Inc. (NASDAQ:TSRA) under which Tessera will acquire DTS for $42.50 per share, representing a 28% premium to DTS’s 30-day volume weighted average price as of September 19, 2016. The all-cash transaction is valued at approximately $850 million.
The transaction will combine market leading audio and imaging innovators with complementary products, technologies, customer channels and intellectual property assets to enable the creation of an expanded, integrated platform to invent the future of smart sight and sound. Upon completion of the acquisition, the combined company will be one of the world’s leading product and technology licensing companies, with over 450 engineers focused on developing next-generation imaging, audio and semiconductor packaging technologies. In addition, the acquisition adds significant scale and diversifies revenue across end markets and customers. The combined company is forecasted to achieve pro forma 2016 revenue of approximately $450 million, nearly half of which will come from product licensing.
The transaction will be immediately accretive to Tessera’s earnings per share and free cash flow. The combined company is expected to realize $15 million in annualized cost synergies within the first 12-18 months following the closing of the transaction and anticipates revenue synergies from the expansion of addressable markets and leveraging of complementary customer channels and technologies. Tessera intends to fund the acquisition with a combination of available cash on hand and approximately $600 million of committed debt financing from RBC Capital Markets. The combined company will maintain a strong balance sheet with pro forma cash and investments of approximately $100 million. The combined company is expected to generate significant free cash flow that will provide flexibility to retire debt, fund quarterly dividends, explore M&A opportunities, and continue investments into its business units. In order to better reflect the combined company’s capabilities and technologies, a new corporate name and stock symbol will be adopted in connection with the closing of the transaction.
“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. We expect this acquisition to be immediately accretive to Tessera’s earnings and accelerate growth. Our complementary technology portfolios are ideally suited to deliver the next generation of audio and imaging solutions to mobile, consumer electronics, and automotive markets while expanding our ability to address incredible new opportunities in IoT and AR/VR,” said Tom Lacey, Tessera CEO. “I am particularly excited that Jon Kirchner and the exceptional DTS team will join the Tessera family as we continue to grow and expand the DTS brand.”
“This is an exciting transaction that provides substantial and immediate value to our shareholders. We look forward to working closely with Tom and the Tessera team to achieve a smooth integration and pursuing the attractive opportunities ahead,” said Jon Kirchner, chairman and CEO of DTS. “We believe that as part of Tessera we will be in a unique position to deliver the world’s leading audio and imaging solutions to all of our key markets and drive meaningful value for our combined customers, partners and employees.” (Original Source)
On the ratings front, DTSI stock has been the subject of a number of recent research reports. In a report released today, William Blair analyst Ralph Schackart downgraded DTSI to Hold. Separately, on August 11, Barrington Research’s James Goss maintained a Buy rating on the stock and has a price target of $40.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Ralph Schackart and James Goss have a total average return of 11.7% and 18.3% respectively. Schackart has a success rate of 64% and is ranked #400 out of 4166 analysts, while Goss has a success rate of 70% and is ranked #146.
Overall, 2 research analysts have assigned a Hold rating and 2 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $38.50 which is -8.5% under where the stock opened today.
DTS, Inc. engages in the provision of audio solutions to consumer electronic devices. Its solutions enables recording, delivery and playback of audio. The company was founded by Terry Beard in 1990 and is headquartered in Calabasas, CA.