ON Semiconductor has made an ambitious move to acquire Allegro MicroSystems in a potential all-cash deal valued at approximately $6.9 billion. This announcement significantly impacted the stock performance of both companies, with Allegro’s shares rising sharply on Thursday morning. The proposed offer, which stands at $35.10 per share, represents a substantial 57% premium compared to Allegro’s closing share price on February 28.
This date marks the last trading day before rumors about a possible acquisition began circulating. ON Semiconductor disclosed this information in a statement released late Wednesday. In response, Allegro MicroSystems confirmed that it had received the acquisition proposal from ON Semiconductor the prior month.
However, the board of directors determined that the offer was "inadequate," as outlined in their statement on Thursday. Market reactions were noticeable, as shares of ON Semiconductor fell by 3.8% in premarket trading, while Allegro saw an increase of 4.5% during the same period. Hassane El-Khoury, the Chief Executive of ON Semiconductor, expressed strong belief in the benefits of merging both companies, stating that it would bring together two highly complementary businesses.
He mentioned that the combination is expected to provide immediate value to Allegro shareholders while enhancing offerings for both companies' customers. El-Khoury noted that Allegro’s unique product range, combined with the differentiated power and sensing technologies from ON Semiconductor, would establish a diversified leader in key sectors such as automotive, industrial, and artificial intelligence data centers. The acquisition process is rooted in ON Semiconductor's ongoing interest in Allegro, which began in September with an initial offer of $34.50 per share.
A follow-up inquiry was made in December, and the company subsequently raised its offer to $35.10 in a letter dated February 12. ON Semiconductor has indicated that they have made numerous attempts to engage Allegro in meaningful discussions regarding a potential deal. To finance this proposed acquisition, ON Semiconductor plans to utilize a mix of committed financing options, existing cash reserves, and available funds under its revolving credit facility. Despite the public nature of their proposal, El-Khoury emphasized that their preference had been for a private resolution of the agreement.
He reiterated the importance of good faith negotiations between the Allegro leadership and ON Semiconductor's management regarding this acquisition. In a related development, Allegro recently appointed Mike Doogue as its new CEO, taking over from Vineet Nargolwala, who has stepped down. Previously, Doogue served as the chief technology officer for the company. As of late January, Allegro reported its fiscal third-quarter adjusted earnings at $0.07 a share, a sharp decline from $0.32 a share during the same period the previous year.
Sales figures also reflected a downturn, with a drop to $177.9 million from nearly $255 million in the previous year’s quarter. The company projected per-share earnings for the fiscal fourth quarter, ending March 28, to fall between $0.03 and $0.07, with sales anticipated in the range of $180 million to $190 million. The Allegro board evaluated the acquisition proposal with insights from independent financial and legal advisors, ultimately concluding that the offer was inadequate..