SAN JOSE — Fairchild Semiconductor, which pioneered the integrated circuit that gave birth to Silicon Valley, said Wednesday it has agreed to be acquired by Phoenix-based ON Semiconductor.
Fairchild investors will receive $20 a share — a 30 to 40 percent premium over Fairchild’s share price in recent months, before word spread that the company was for sale.
Keith Jackson, CEO of ON Semiconductor, said in a conference call that the deal will create “a premier power and analog semiconductor company” with revenue of $5 billion, making it one of the top 10 non-memory chip companies worldwide.
The $2.4 billion cash deal for the descendant of the company that launched Silicon Valley is the latest in a string of mergers and acquisitions that have swept the semiconductor industry, with 2015 setting a record even before the year ends for the dollar value of deals.
According to Dealogic, there have been just over $118 billion in pending and completed deals this year. That was driven in part by two big deals, the $37 billion acquisition of Broadcom by Avago Technologies and Intel’s $16.7 billion purchase of Altera.
In another brewing chip merger, Microsemi, a semiconductor company based in Orange County, on Wednesday boosted its offer for PMC-Sierra, based in Sunnyvale, to $2.3 billion, or $12.05 a share, in a bidding war with Woburn, Massachusetts-based Skyworks Solutions.
Smaller to medium-size chip companies like ON and Fairchild need to combine because they are “stuck in the middle” between innovative startups and giants like Intel that have broader product portfolios, said Mark Hung, an analyst with Gartner.
The combination gives ON some momentum in a crowded marketplace for power semiconductors, said Tristan Gerra, an analyst with R.W. Baird. “They’ll be a one-stop supplier,” Gerra said.
Reports began circulating a month ago that Fairchild had retained someone to help it look at strategic options, said Craig Ellis, an analyst with B. Riley. ON bought “knowing if they didn’t make a bid, somebody else would, and their competitive position would be diminished,” Ellis said.
Cost reductions of about $150 million are expected from the merger over the next 18 months.
“The biggest driver is cost synergies and scale,” said Stacy Rasgon, an analyst with Sanford Bernstein.
The two companies make power semiconductors, but there is little overlap in their markets. ON concentrates on the low-voltage market and Fairchild sells high- and medium-voltage chips.
Shares of ON dived nearly 8 percent to $9.89 in trading Wednesday, while Fairchild’s rose 8.5 percent to $19.40.
The merger will erase a storied name from the roster of Silicon Valley pioneers, although the current Fairchild is a much different company from the one that pioneered the integrated circuit.
A crucial early chapter in Silicon Valley’s story begins with the formation of Fairchild in 1957, when eight employees of Shockley Semiconductor Laboratories jumped ship to form the company.
Shockley Semiconductor was founded by William Shockley, co-inventor of the transistor, the tiny building block with which the giant semiconductor industry was created.
From Fairchild, pioneers such as Intel’s co-founders Robert Noyce and Gordon Moore fanned out to create their own semiconductor companies.
Fairchild became a subsidiary of Slumberger in 1979, was acquired by National Semiconductor in 1987 and became an independent company again in 1997.
Contact Pete Carey at 408-920-5419. Follow him at Twitter.com/petecarey.
