On Semi Stock Tumbles To 3-Year Lows As Allegro Microsystems Jumps After Rejecting Buyout Offer

Allegro MicroSystems (ALGM) shares jumped more than 8% in morning trading Thursday, hitting their highest level in over seven months, after the company confirmed it had turned down an unsolicited acquisition offer from On Semiconductor (ON).

While Allegro’s stock rallied, On Semi shares fell more than 3% to a three-year low of $43.33, a level last seen in October 2021. 

On Semi had proposed acquiring Allegro for $35.10 per share in cash on February 12 – a 31% premium to Allegro’s closing price on Wednesday. 

However, after consulting independent financial and legal advisors, Allegro’s board deemed the offer inadequate.

The decline adds to On Semi’s stock struggles this year, with shares down more than 30% year-to-date.

Morgan Stanley analyst Joseph Moore questioned the proposed deal's financial viability, stating that he “struggles with accretion math” for On Semi’s bid. 

While he acknowledged that Allegro is a “high-quality business” and could be a strategic fit given On Semi’s fab utilization pressures, he noted that the interest expense involved in the acquisition would significantly pressure any overlap to achieve profitability.

Morgan Stanley maintains an ‘Underweight’ rating on On Semi’s stock with a $44 price target.

On Stocktwits, retail sentiment around Allegro’s stock surged into ‘extremely bullish’ territory, accompanied by ‘extremely high’ levels of chatter.

Meanwhile, retail sentiment on Stocktwits around OnSemi’s stock dipped lower within ‘neutral’ territory.

Some investors on the platform speculated that Allegro’s rejection could push On Semi to return with a higher bid.

Allegro, which produces power management systems for electric and traditional vehicles, also supplies chips critical for brake and steering assistance systems. 

The company’s stock is up over 29% this year.

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