Maxim: Trading ~$5 Below The ADI Buyout Terms, Dividend Outlook Excellent

Seeking AlphaDividend Ideas | Tech Maxim: Trading ~$5 Below The ADI Buyout Terms, Dividend Outlook ExcellentOct. 26, 2020 11:14 PM ET|| About: Maxim Integrated Products, Inc. (MXIM), Includes: ADI, NXPI, TXNby: Michael FitzsimmonsMichael Fitzsimmons Technology, ETFs, Renewable Energy, Oil & gas, GoldSummaryMaxim Integrated Products has significantly underperformed the SOX index this year despite the buyout bid from ADI.
There are no anti-trust issues, in my opinion, so the current $5/share discount in Maxim stock price doesn't appear rational.
Combined, the two companies are expected to ultimately achieve ~$270 million in annual cost savings.
I estimate the combined companies will generate ~$4.68/share of annualized FCF. That compares very favorably to ADI's current $2.48/share annual dividend.

Over the past year, Maxim Integrated Products (MXIM) is up ~25%. That handily beats the S&P 500 but significantly lags the iShares PHLX Semiconductor ETF (SOXX) by over 20%. The pending merger with Analog Devices (ADI), which has been approved by the shareholders of both companies, has likely put a damper on the ADI's YTD returns as the market positions itself for ADI to digest the acquisition. This could prove to be an opportunity for investors going forward. Note, ADI is up only 12% this year:
Data by YCharts
Acquisition Terms
Analog Devices announced the merger back in July. It's an all-stock transaction with an estimated value of ~$17 billion whereby Maxim stockholders will receive 0.630 of a share of ADI common stock for each share of Maxim common stock they hold. As I write this, the current share prices are:
ADI: $124.04 -$0.71 (-0.57%)
MXIM: $73.02 -$0.53 (-0.72%)
As a result, MXIM is trading ~$5/share lower than the 0.63x factor and ADI's current share price would infer ($78.15).
Since this is an all-stock transaction (no debt needed - Maxim has no -long-term debt) and the merger has been approved by the... Read more