Intel Corp. will acquire Mobileye NV for about $15 billion, paying one of the highest takeover premiums this century to play catch-up in the market for technology that helps cars drive themselves.
The U.S. chipmaker will pay $63.54 per share in cash for Jerusalem-based Mobileye, which makes chips for cameras and driver-assistance features. The offer, the largest ever for an Israeli company, is a 34 percent premium to Mobileye’s closing price on Friday. The shares surged 29 percent to $61.10 at 12:45 p.m. in New York. Intel stock dipped 1.8 percent to $35.28.
Intel is trying to accelerate a push into what many chip companies view as the next big opportunity: self-driving cars and the data they generate. With Mobileye, Intel gains the ability to offer automakers a larger package of components they will need as vehicles become more autonomous. The Santa Clara, California-based company estimates the market for vehicle systems, data and services will be worth as much as $70 billion by 2030.
“They’re paying a huge premium in order to catch up, to get into the front of the line, rather than attempt to build from scratch,” said Mike Ramsey, an analyst with technology researcher Gartner.
The deal is the third most expensive acquisition in the technology industry this century, based on transactions over $5 billion and Mobileye’s trailing 12 month earnings, before interest, tax, depreciation and amortization. The deal gives Mobileye an enterprise value of about 29.5 times this year’s projected sales, according to Amit Daryanani, an analyst at RBC Capital Markets. That’s more than 10 times the average of companies in the U.S. benchmark Standard & Poor’s 500 Index, according to data compiled by Bloomberg.
Shashua and Aviram
Mobileye was founded in 1999 by Amnon Shashua and Ziv Aviram and made its name with systems that alert drivers to pedestrians, unintended lane departures and speed limit violations. The technology, which can also trigger braking to prevent an accident, counts General Motors Co. among its customers. Recently, Mobileye has been pushing to sign up more carmakers for its advanced products, such as technology that collects data from vehicle fleets to build a real-time, crowd-sourced mapping service. Goldman Sachs Group Inc. invested $100 million in 2007 for a minority stake in Mobileye.
Intel will combine its existing autonomous vehicle technology unit with Mobileye and the new group will be run in Israel by Shashua, the companies said in a statement.
“Shashua is the personification of car safety and autonomous driving,” said Shmuel Harlap, chairman of car importer Colmobil Ltd. and Mobileye’s biggest shareholder. “Just look at his quarrel with Elon Musk and you understand the personality.”
Last year, Musk’s electric carmaker Tesla Inc. stopped using Mobileye’s systems and the two companies argued publicly about the breakup. The Israeli company expressed concerns about the safety of Tesla’s Autopilot hands-free highway driving feature, while Tesla accused the supplier of trying to block its in-house efforts to develop computer vision capabilities for cars.
While Intel’s chips are dominant in personal computers and data centers, the world’s largest semiconductor maker has struggled to spread the use of its products to other areas where semiconductors based on ARM Holdings Plc. designs have prevailed. Under Chief Executive Officer Brian Krzanich, Intel has sought to break into everything from drones to cash registers. That hasn’t fired up Intel’s overall sales growth yet, leaving the company reliant on PCs and servers for its profit.
Mobileye is the second-biggest acquisition for Intel after Altera Corp., which it bought in 2015 for $16.7 billion. As of the end of 2016, Intel held about 80 percent of its $17.1 billion in cash and equivalents overseas. It could use some or all of that to buy Mobileye, a potentially efficient use of cash that would be taxed more if brought back to the U.S. The company had total debt of $25.3 billion at the end of last year.
On a conference call with analysts, Krzanich said the deal will immediately add to Intel’s adjusted earnings and cash flow. But the acquisition won’t have much impact on revenue. Last year, Intel reported sales of $59 billion compared with Mobileye’s $358 million.
“We are looking beyond just the revenue it’s going to grow into,” the Intel CEO told Bloomberg Television. “If you look at where autonomous vehicles are going, you have to make a deal in order to be there in 2021 when models hit the road.”
In the highly competitive market for autonomous cars, Intel’s purchase is a shot at rival Qualcomm Inc. The mobile phone chipmaker is in the process of making itself the world’s biggest producer of chips used by the automotive industry through its $47 billion acquisition of NXP Semiconductors NV.
“Intel are so far behind in this space the only way they could catch up was via an acquisition,” said Neil Campling, head of technology research at Northern Trust Securities.
Carmakers and technology companies are scrambling to stake out a leading market position. Intel’s chips are already in 30 vehicle models currently on the road and are being used in hundreds of autonomous test vehicles, the company said in January. Intel and Mobileye had already teamed up with BMW AG and plan to introduce fully autonomous cars by 2021. The companies are dispatching a fleet of 40 self-driving 7-Series sedans this year to hone systems for complex urban traffic.
Alphabet Inc.’s Google has clocked more than 2 million self-driving test miles on public roads, Tesla has gathered data from 1.3 billion miles of data from Autopilot-equipped vehicles, and Mercedes-Benz parent Daimler AG has partnered with Uber Technologies Inc.
Google, which separated its self-driving car project into a new unit called Waymo last year, plans to start a ride-sharing service using semi-autonomous minivans made by Fiat Chrysler Automobiles NV as soon as the end of 2017. Volkswagen AG is rolling out Moia, a new division that will focus on ride-sharing and other mobility services. Mercedes already offers cars that can pilot themselves at highway speeds.
Digital mobility services for automobiles will reach 1.9 trillion euros ($2.03 trillion) in 2025, up from 860 billion euros in 2016, according to Sarwant Singh, a senior partner at the global market research company Frost & Sullivan. In an interview earlier this year he attributed much of Mobileye’s success to the fact that it was first in its field.
Intel Chief Financial Officer Robert Swan said the company expects to see $175 million a year in cost and tax savings from the transaction and that this will help cover the premium Intel is paying for Mobileye.
Copyright 2017 Bloomberg.
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