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Thursday, Mar 28, 2024

Audio Firm DTS Hears Sound of Cash Calling

The buyout of audio technology developer DTS Inc. is part of a larger acquisition strategy by its acquirer, Tessera Technologies Inc. Tessera, in San Jose, has a lot of cash on hand so it bought DTS in Calabasas in an all-cash deal at $42.50 a share. The transaction, worth a total of $850 million, is expected to close at the end of the year or early next year. Gary Mobley, an analyst with Benchmark Co. in St. Louis, said that Tessera generates a lot of cash flow from selling its chip packaging technology to three of the top dynamic random-access memory, or DRAM, chip makers. DRAM chips are used in the main memory and graphics cards of modern computers. “The management at Tessera has been making acquisitions, and as part of an acquisitive strategy, management went out and bought DTS,” Mobley said. DTS was founded in 1993 and its initial products were for digital multi-channel audio in movie theaters before transitioning to serve the home entertainment and automotive markets. For the second quarter ending June 30, the company reported adjusted net income of $12.1 million (67 cents a share) compared with $6.2 million (34 cents) in the same period a year earlier. Revenue for the quarter totaled about $48.7 million, an increase of 41 percent. Tessera started in 1990 making semiconductor packaging and later expanded into image and video enhancement and analysis. For the quarter ending June 30, the company reported adjusted net income of $30.2 million (60 cents a share) compared with $31.5 million (58 cents) in the same period a year earlier. Revenue was $67 million. DTS Chief Executive Jon Kirchner said the transaction brings substantial and immediate value to shareholders. “We believe that as part of Tessera we will be in a unique position to deliver the world’s leading audio and imaging solutions to all of our key markets and drive meaningful value for our combined customers, partners and employees,” Kirchner said in a prepared statement. Mobley does not expect any shakeup at DTS once the deal is closed because Kirchner will remain as DTS president. In addition, there’s a lack of synergy between the products DTS makes and those that Tessera makes. Tessera will benefit from the deal with a diversified source of revenue. DTS is a profitable company that will add earnings per share of 80 cents to Tessera’s quarters, Mobley said. “That is why you have seen Tessera’s stock do pretty well after the announcement of the acquisition, due to that accretion,” he added. Tessera’s share price has gone up about 12 percent since the acquisition was announced.

Mark Madler
Mark Madler
Mark R. Madler covers aviation & aerospace, manufacturing, technology, automotive & transportation, media & entertainment and the Antelope Valley. He joined the company in February 2006. Madler previously worked as a reporter for the Burbank Leader. Before that, he was a reporter for the City News Bureau of Chicago and several daily newspapers in the suburban Chicago area. He has a bachelor’s of science degree in journalism from the University of Illinois, Urbana-Champaign.

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