Why Jefferies Likes Rambus' Acquisition Of IPHI's Memory Buffer Business

Jefferies views Rambus Inc. (NASDAQ: RMBS)'s acquisition of IPHI's memory buffer business as positive despite maintaining its Hold rating on the stock.

Rambus has agreed to acquire the business and assets of IPHI's memory interconnect business for $90 million in cash. The deal, which is expected to close in the third quarter of 2016, focuses on IPHI's memory buffer chipset and is complementary to RMBS's buffer chipset initiative.

Following are the two reasons why Jefferies likes the deal:

1) "it is a consolidation of the memory buffer industry, which we think leads to higher share and better pricing dynamics"
2) "IPHI's memory team brings operational experience and expertise."

Rambus said it expects the acquisition to be accretive to 2017 non-GAAP EPS.

"However, our preliminary estimate suggests that the deal would be dilutive to gross and operating margins by 320bps and 360bps, respectively, and 1c accretive to EPS," analyst Mark Lipacis wrote in a note.

At time of writing, shares of Rambus fell 2.51 percent to $11.65. Lipacis has a price target of $12.50.