Rambus Inc. (RMBS) announced it will acquire privately held Cryptography Research Inc. under a definitive agreement. The total consideration of $342.5 million will comprise $167.5 million in cash, roughly 6.4 million in shares of Rambus stock and $50 million in cash or stock over three years to Cryptography employees.

San Francisco-based Cryptography’s technology focuses on protection of semiconductor counterfeiting, authenticating printer cartridges and blu-ray disks. The technology is widely used in consumer electronic applications including mobile, Web and blu-ray players. Cryptography’s licensed inventions include content protection, network security, anti-counterfeiting and financial services solutions. The company has the world’s leading technology and media delivery companies on its client list. Among these, Atmel Corp. (ATML), Infineon Technologies AG (IFX), Microsoft Corp. (MSFT), NXP, Raytheon (RTN), Renesas Electronics, Samsung, STMicroelectronics NV (STM), Toshiba Corp., and Visa are worth mentioning.

Cryptography’s set of solutions will complement Rambus’ semiconductor as well as lighting and display technologies. Rambus expects the combined force to develop and introduce more innovations in the field of technology and drive revenue growth. Apart from this, Rambus would get hold of Cryptography’s rich customer base.

Rambus expects the transaction to close within a month contingent upon regulatory approvals. The added unit is expected to be accretive to pro forma earnings by 2013.

We believe that the acquisition will prove beneficial as it will enhance the product portfolio of Rambus and extend its customer reach. Rambus’ endeavor to diversify into the lighting and display technology space in an effort to tap the tremendous opportunity in solid state lighting is encouraging. Cryptography’s technology support further strengthens its lighting and display licensing.

Despite the positives, we prefer to remain cautious on Rambus due to a ruling initiated by a federal court. As per the ruling, Rambus was held guilty for inappropriately destroying documents related to patent cases against Hynix Semiconductor Inc. and Micron Inc. (MU). We believe that the court decision will have a negative impact on investor sentiment, which can well be inferred from the declining share price. On the news, Rambus share tumbled 17.8% and closed at $15.83.

Currently, Rambus has a Zacks #5 Rank, indicating a short-term Strong Sell recommendation.

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