Maxim to be Acquired; Merger Agreement Restricts Ability to Pay Dividends Until Deal Closes in 2021

In July, Maxim announced plans to be acquired by Analog Devices, sending its stock price soaring to an all-time high.

However, as part of the merger agreement, Maxim is not permitted to repurchase shares or pay dividends in any of the next four fiscal quarters. (The deal is expected to close by the summer of 2021.)

Maxim on July 28 declared its final quarterly dividend, which will be paid on September 11 to stockholders of record on August 27, 2020.

With dividends expected to be discontinued thereafter until the merger closes, we are dropping Maxim from our Dividend Safety Score coverage.

Maxim had a Safe Dividend Safety Score and had nearly doubled the S&P 500's total return in recent years.

Maxim shareholders will receive 0.63 of a share of Analog Devices' stock for each share of Maxim stock that they hold. Cash will be paid in lieu of any fractional shares.

Aside from any cash received in lieu of fractional shares, the merger is structured so that U.S. holders of Maxim stock will not recognize any gain or loss for federal income tax purposes.

Additionally, Maxim shareholders' tax basis in the shares of Analog Devices stock received in the merger will equal their tax basis in the shares of Maxim stock exchanged in the merger.

The holding period of the shares of Analog Devices stock received by Maxim investors will also carry over.

Going forward, shareholders need to decide if they want to hold a stake in the combined company.

The merger has a number of strategic appeals which we discussed in an article on Analog Devices here.

Analog Devices also has a Safe-rated dividend, though its payout is somewhat smaller than Maxim's.

Based on Analog Devices' dividend and the merger's stock exchange rate, we estimate that Maxim shareholders will effectively receive around $1.70 per share in annual dividends compared to Maxim's current $1.92 per share payout once the deal closes in mid-2021.

However, Analog Devices expects to grow its dividend by 7% to 15% annually, which is faster than Maxim's pace of growth (last dividend increase was a 4% raise in 2019).

For more insight on the combined company, please see our note here.

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