The IDT transaction from Renesas looks good. If you do not look closely

Renesas Electronics Corp. makes a very good presentation.

In a 15-page game explaining its $ 6.7 billion cash offer for Integrated Device Technology Inc., the Tokyo-based chip maker reported improved margins and pre-tax profits and depreciation.

The gross margin and operating margin would increase by 1.6 percentage points and 1.2 percentage points, respectively, according to the agreement.

Except that the company has opted for IDT's non-GAAP measures, which remove the pesky elements that the San Jose component manufacturer's management would prefer to ignore, such as stock-based compensation, restructuring costs and inventory adjustments.

Under GAAP, IDT's gross margin was 4.9 percentage points lower than Renesas' margin in Tuesday's 2018 presentation. Operating margin was less than half of 13.2%. Ouch!

These numbers matter. While Renesas appears to be paying 29 times last year's operating profit at IDT, accounting using GAAP doubles this cost to 60 times.

Perhaps management could justify such a multiple if it bought a growing business with a lot of potential. However, IDT's sales growth is at best stagnant and just 8% higher than in the previous decade. And although in recent years the management has collected a series of profits – after two decades in which consecutive years of earnings often seemed to escape – profits are not exactly a rift.

On a GAAP basis, IDT recorded a net loss of $ 12.1 million last year (a margin of 1.4%). But good luck finding this gem in the glowing report prepared by Renesas.

In fact, if what you are looking for is an exceptional offer at a reasonable price, do not just look too closely.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Culpan is a columnist for Bloomberg Opinion covering technology. Previously, he covered technology for Bloomberg News.

© 2018 Bloomberg L.P.