BREAKINGVIEWS-Chipmaker crafts tricky recipe for chaos-era M&A

By Karen Kwok

LONDON, April 8 (Reuters Breakingviews) - It’s encouraging for dealmakers that a multibillion-dollar transaction can get announced amid a global market meltdown and extreme economic uncertainty. What’s less reassuring is that the enabling factors in this case seem idiosyncratic.

Infineon Technologies IFXGn.DE, which designs and manufacturers semiconductors for customers as varied as carmakers and electricity generators, said late on Monday that it would buy the automotive ethernet division of Marvell Technology MRVL.O for $2.5 billion in cash. The business in question connects the chips found in cars and could help the $36 billion German acquirer prepare for a future of more widespread autonomous driving.

It’s an unusual time to announce a deal. Global stock markets are still reeling from U.S. President Donald Trump’s tariff announcements last week, which could upend supply chains and prompt an escalating trade war. Corporate borrowing costs, measured by the interest-rate gap compared with risk-free government bond yields, are still low by long-term historic standards but have leapt in recent days, in theory making debt-financed dealmaking trickier.

Infineon CEO Jochen Hanebeck has gotten around these obstacles in several ways. First, he doesn’t need to tap bond or loan markets in size. Infineon is an investment-grade borrower and had over $2 billion of gross cash to hand as of December 31, implying that Hanebeck could seal the deal mostly from his existing resources if he needed to. Second, the buyer is paying a price that was probably hard for the seller to refuse. The valuation multiple works out at roughly 10 times the up to $250 million in revenue that the acquired business is on course to generate this year, compared with Infineon’s own equivalent multiple of 2. Marvell’s shares were briefly up more than 4% in after-hours extended trading on Monday, Reuters reported, suggesting that its own investors liked the terms.

The lesson, then, is that M&A amid the trade-war fog could depend on finding a price-insensitive buyer who doesn’t really need major debt or equity financing to get over the line. That’s not an easily repeatable formula. Dealmakers’ cheer from seeing a new transaction cross their screens may be short-lived.

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CONTEXT NEWS

German chipmaker Infineon Technologies said on April 7 it would buy Marvell Technology’s automotive ethernet business for about $2.5 billion in cash.

Infineon has secured acquisition financing from banks and expects the deal to close this year.

Marvell’s shares rose nearly 4% in after-hours U.S. trading on April 7. Shares of Infineon were flat when German markets opened on April 8.