Cowen and Company affirms Micron (Nasdaq: MU) with an Outperform rating and $24 price target following news that the company would acquire the rest of Inotera Memories that it doesn't already own.

On the news, analyst Timothy Arcuri commented:

"MU and Inotera jointly announced that MU is buying the remaining 67% of Inotera for $4B ($3.2B EV), consisting of $2.5B of debt, up to $1B in equity and the remainder in cash. Using CY15 estimates, the deal values Inotera at 1.6x EV/Sales, 2.8x EV/EBITDA and 12.7x EPS – somewhat rich on EV/S and EPS relative to MU’s own valuation (albeit Inotera’s results arguably are depressed and thus multiples overinflated). Subject to approval by regulators and Inotera’s shareholders the deal is expected to close mid-2016.

While there are merits to owning Inotera outright as MU can capture the ~35% gross margin being paid to Inotera and gains full control over technology transitions at 20nm and 1x nodes, our own assessment of the firm’s pro-forma model (using Street estimates for Inotera) implies only 2% EPS accretion in CY17 (to $2.45). Our analysis is based on $2.5B debt (4.5%), $700M new equity issuance and ~$840M in MU cash (equal to Inotera’s net cash position). Relative to our own CY17 estimates for MU, the largest accretion variable to our analysis is the amount of MU equity issued Nanya (which we assume is new share issuance). We estimate if the $4B deal value was done with $3.5B debt/$0.5B cash the deal would generate ~$2.55 EPS," Arcuri noted.

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