This Big Chip Deal May Be Small Enough to Win

By Anonymous

Renesas Electronic Corp.’s $6.7 billion acquisition of Integrated Device Technology Inc. IDTI 0.26% is its largest purchase ever. Whether the chip deal goes through may hinge on it being small enough to escape notice.

Japan’s Renesas, one of the largest suppliers of chips to the auto industry, said Tuesday it would pay $49 a share in cash for IDT. That represents a premium of nearly 30% over IDT’s share price from late August, just before Renesas announced that the two were in talks. IDT’s chip products are used in areas like autonomous driving systems, boosting Renesas’s presence in that hot market.

The deal makes sense and integration should be smooth. However, this also is a deal in the sensitive area of semiconductor chips at a time of growing trade tensions between the U.S. and China. That feud already has iced two major chip deals this year. The U.S. government killed Broadcom’s $117 billion bid for Qualcomm, while Qualcomm ’s $44 billion bid for NXP was called off after Chinese authorities failed to approve it after nearly two years.

Renesas says it doesn’t anticipate trouble from China because only about 10% of IDT’s revenue comes from there. Christopher Rolland of brokerage Susquehanna says that IDT’s exposure to China “leaves it right on the bubble of the need for regulatory review.” On the U.S. side, Renesas got regulatory approval for its acquisition of chip maker Intersillast year.

The deal may succeed for two other reasons. Renesas is from Japan, which has deep business relationships with both the U.S. and China, and the price is a fraction of the value of the two failed deals. This might be one of the few international tech deals to sneak by this year.