DTS (DTSI) Stock Soars After Tessera Technologies $850M Acquisition

Shares of DTS Inc. (DTSI) were trading up +7.43 or +21.64 percent to $41.76 per share in Tuesday’s premarket after news broke early this morning that the company would be acquired by Tessera Technologies (TSRA) for $850 million cash. DTS Inc. stock closed at $34.33 per share, up +0.28 or +0.82 percent in Monday’s regular trading session.

Stock Analysis

Founded in 1993, Calabasas, California based DTS Inc. is a company focusing on audio technology for the entertainment industry. DTS Inc.’s main competitor has been Dolby Laboratories, which became the audio standard for DVDs. In addition to audio technology, the company provides image processing services to film studios for the preparation and enhancement of film, television, Blu-Ray and DVD for presentation. DTS formatted playback audio systems have been installed in 28,000 movie screens worldwide and the company’s technology is imbedded in over two billion devices globally.

San Jose, California based Tessera Technologies, which includes its subsidiaries FotoNation and Invensas is a patent licensing firm that licenses technologies and intellectual property for use in mobile computing, memory, data storage, 3D-IC technology and telecommunications. Tessera’s technologies include interconnect solutions and semiconductor packaging, bonding and imaging technologies for mobile, home and automotive systems.

Early on Tuesday, the two companies announced their definitive agreement in which Tessera will acquire all outstanding common shares of DTS Inc. for $42.50 per share. The amount represents a +28 percent premium over DTS stock’s 30 day volume weighted average price and a +24 percent premium over the stock’s Monday closing price. The all cash transaction is valued at approximately $850 million.

After the acquisition, the combined company will put together market leading imaging and audio technologies with complementary products, customer channels and intellectual property assets. The combination of these factors will create one of the world’s leading product and licensing companies in the field of smart sight and sound.

The combined company will have over 450 engineers that will focus on the development of next generation imaging, audio and semiconductor packaging technologies. The acquisition will add significant scale and diversified revenue flows from end markets and customers.

Jon Kirchner, Chairman and Chief Executive Officer of DTS Inc. stated in this morning’s press release that, “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. 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.”

Once completed, the combined company is forecast to achieve pro forma 2016 revenue of about $450 million, of which approximately 50 percent is expected to come from product licensing. The transaction will immediately be accretive to Tessera’s free cash flow and earnings, with the combined company expected to realize as much as $15 million in annualized cost synergies within 12 to 18 months of the closing of the transaction.

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