Harsh Kumar, Analyst with Stephens, Inc., says the Street misunderstands the accretion that comes from RF Micro Devices, Inc.’s (RFMD) recent merger with TriQuint Semiconductor (TQNT). He says the deal combines RFMD with its closest competitor, and should be completed by the end of the year.
“They have taken a shot as a management that a reasonable level of accretion that they will get, and they have highlighted conservatively $150 million of cost savings on a combined company revenue stream of $2.5 billion,” Kumar says. “So if you take a look at that number, you’d say well, that alone by itself in all metrics is 6% to 7% to 8% kind of an accretion on an operating margin.”
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However, Kumar says his research indicates a greater level of accretion. He says he and his team have come up with greater than $5 in earnings power for the combined company two years after the deal is done.
“We come up with 30%-plus consistent operating margin model, and we come up with $4 to $5 in cash generation for the new company,” Kumar says. “The new company will have a new name; it will also have a new ticker. But the way to get into the new company is you can either buy a share of TriQuint or you can buy a share of RFMD and basically, given that the merger news is public, the two trade in sort of tandem, and there may be a penny sort of an arbitrage, but typically they are pretty close together.”
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