Onsemi slashes Synaptics takeover to $5.7 billion cash after rival bid surfaces

ON Semiconductor Corp. and Synaptics Inc. said late Thursday that they have torn up the stock-for-stock merger agreement they signed in June and replaced it with an all-cash deal worth roughly $5.7 billion, a restructuring that followed a previously undisclosed rival offer for the touch-and-sensor chipmaker. Under the amended and restated merger agreement filed with securities regulators, onsemi will now pay $123 a share in cash for Synaptics, down from an aggregate value of about $7 billion when the companies first announced their tie-up on June 25.

The switch from stock to cash removes the dilution that had rattled onsemi investors over the summer, and it closes out a brief but consequential bidding contest that played out largely behind closed doors between September and early October.

Onsemi, based in Phoenix, is one of the largest suppliers of power-management and sensing semiconductors used in electric vehicles, industrial automation and data centers. Synaptics, based in San Jose, makes the touch controllers, display drivers, fingerprint sensors and low-power wireless chips found in laptops, smartphones and connected-home devices. The two companies' product lines barely overlap, which is the point: onsemi has said the acquisition is meant to push it into human-machine interfaces and edge-AI processing rather than to consolidate an existing market.

What happened

Both companies' boards unanimously approved the revised terms on October 1, according to onsemi's filing disclosing the amendment and a matching disclosure from Synaptics. The new agreement scraps the original 1.350-share exchange ratio entirely in favor of straight cash, a change that also means the deal no longer qualifies as a tax-free reorganization under Section 368 of the Internal Revenue Code. Onsemi is withdrawing the S-4 stock-registration statement it had filed with the Securities and Exchange Commission in August, since no new onsemi shares will be issued to complete the acquisition.

The companies disclosed in a joint announcement carried over GlobeNewswire that the amendment followed an unsolicited, non-binding proposal Synaptics received on September 2 from an unnamed "strategic party," referred to in SEC filings as Party A. At one point, Synaptics' board special committee determined that Party A's offer met the contractual definition of a "Superior Proposal," a designation that would have allowed Synaptics to walk away from onsemi. Further negotiations between onsemi and Synaptics followed, after which the board concluded the sweetened onsemi terms once again topped the rival bid, and the original agreement was formally amended rather than abandoned.

The numbers

The headline figures: $123 per share in cash, an aggregate transaction value of about $5.7 billion, down from the roughly $7 billion implied by the original stock swap. Onsemi has lined up financing consisting of cash on hand plus up to $2.45 billion in committed senior secured term loans from Morgan Stanley; unlike many leveraged deals, financing is not a condition to closing. U.S. antitrust clearance under the Hart-Scott-Rodino Act had already been obtained before the amendment, which should keep the deal on its original timetable of a close by mid-2027, subject to a Synaptics shareholder vote. Under the amended terms, outstanding Synaptics restricted and performance stock units for continuing employees will convert into onsemi equity awards using a ratio based on $123 divided by the five-day volume-weighted average price of onsemi shares before closing, while vested awards are cashed out directly.

How the deal got here

When onsemi first unveiled the all-stock acquisition on June 25, investors punished the stock hard: onsemi shares fell more than 20% the following trading day, their steepest one-day decline in months, as analysts flagged dilution from handing Synaptics holders roughly 12% of the combined company and questioned the strategic logic of a power-semiconductor specialist buying a human-interface and edge-computing chipmaker. Coverage of that selloff noted that several sell-side firms, including TD Cowen, downgraded both companies on integration-risk concerns even as others defended the long-term industrial logic of combining onsemi's power and sensing businesses with Synaptics' touch, display-driver, biometrics and wireless-connectivity portfolio.

That depressed onsemi share price appears to have opened the door for a rival suitor. Synaptics disclosed that Party A approached it less than three months after the original signing, and the Special Committee's finding that the proposal was superior forced onsemi back to the table. Under typical merger-agreement "fiduciary out" provisions, a target board that receives a Superior Proposal must usually notify the original acquirer and give it a window to match or improve its terms before the target can terminate the existing agreement and pay a break fee to walk away. That appears to be the mechanism that played out here: rather than lose the target, onsemi restructured its own bid into cash, eliminating the stock-dilution objection that had driven its shares down in the first place and, according to the company, making the transaction accretive to adjusted earnings immediately upon closing rather than only after several years of integration.

Who is affected

Synaptics shareholders are now assured a fixed cash payout rather than a floating number of onsemi shares whose value had been sliding since June. Synaptics employees with unvested equity face the same cash-or-convert mechanics typical of take-private-style deals, and the company's plan to seat a director on onsemi's board — part of the original agreement — has been dropped under the amended terms. For onsemi, the all-cash structure avoids further dilution of existing shareholders but adds roughly $2.45 billion of new secured debt to its balance sheet, a trade-off the company's management argues is worth making to retain Synaptics' edge-AI and connectivity technology as it tries to diversify beyond its traditional automotive and industrial power-chip base.

Reaction

Executives from both sides framed the amendment as a win. "The all-cash transaction delivers higher value to our shareholders through lower total cost consideration, and we now expect the transaction to be immediately accretive to non-GAAP EPS upon closing," said onsemi president and chief executive Hassane El-Khoury in the companies' joint statement.

"By transitioning to an all-cash structure, we are providing value certainty at a meaningful premium as compared to current value," said Synaptics president and chief executive Rahul Patel.

Trade press covering the chip sector characterized the episode as a rare instance of a public bidding contest resolving with the original acquirer sweetening and restructuring its offer rather than being topped, with industry coverage of the reworked agreement noting the unusual sequence of events between the September proposal and October's amended signing.

What happens next

Onsemi and Synaptics must now file a preliminary proxy statement with the SEC within ten days of the amendment, after which a Synaptics shareholder vote will be scheduled within 30 days of the SEC completing its review of that proxy. Because antitrust clearance is already in hand, the main remaining hurdle is shareholder approval of the new cash terms, which the boards of both companies have already endorsed unanimously. Barring a fresh competing approach from Party A or another party, the two sides continue to target a closing by the middle of 2027, at which point Synaptics would become a wholly owned subsidiary of onsemi and cease to trade as an independent public company.