Avago to buy Broadcom for US$37b in biggest tech deal

[NEW YORK] Avago Technologies Ltd, a Singapore-based maker of semiconductors, agreed to buy Broadcom Corp for US$37 billion in the biggest technology acquisition ever.

Avago will pay US$17 billion in cash and US$20 billion in stock in the transaction, the companies said in a statement. The offer values Broadcom at US$54.50 a share in cash, compared with a closing price of US$57.16 on Wednesday, when the stock rose the most since 2001 after reports that a deal was imminent. The offer price is a 16 per cent premium to where Broadcom's shares closed on Tuesday. The stock traded at US$56.96 at 8:38 am in New York on Thursday.

The transaction is the biggest in the technology industry, according to data compiled by Bloomberg.

The purchase of Broadcom creates the world's sixth-largest chipmaker by revenue and is the latest in a round of consolidation in the US$300 billion industry as the rising costs of production and design push manufacturers to combine. Singapore-based Avago has been at the forefront of that wave with several acquisitions, including its US$5.6 billion purchase of LSI Corp at the end of 2013. The flood of deals may be reaching its peak.

"I've got my misgivings, this feels very frothy for me," said Alex Gauna, an analyst at JMP Securities in San Francisco. "This seems like a stretch."

Broadcom, based in Irvine, California, represents a much bigger target for Avago. While Singapore-based Avago has a greater market value, at US$36.3 billion, the wireless chipmaker had higher sales last year, with US$8.4 billion, compared with its acquirer's US$4.9 billion.

A deal would be almost twice the size of NXP Semiconductors NV's pending purchase of Freescale Semiconductor Ltd for about US$16.7 billion, including debt, announced in March.

In the deal, Avago will acquire Broadcom for cash and the economic equivalent of about 140 million Avago shares, valued at US$20 billion as of Wednesday. Broadcom's shareholders will own about 32 per cent of the combined company, to be named Broadcom Ltd. Avago intends to fund cash part with cash on hand and US$9 billion in new financing from a consortium of banks. The deal is expected to close in the first quarter of 2016.

Broadcom shares gained 22 per cent to US$57.16 at the close in New York, its biggest one-day gain and highest value since 2001. Avago increased 7.8 per cent to US$141.49 after the Wall Street Journal reported earlier that the companies were in advanced merger talks.

Broadcom is the biggest maker of Wi-Fi chips that provide short-range connections for mobile devices. The company is shuttering its unit that makes modem chips for mobile phones. That's reducing losses and expenses in a business that failed to gain significant market share from Qualcomm Inc.

Avago was founded in 1961 as an electronics division of Hewlett-Packard Co. It pioneered the market for light-emitting- diode displays before expanding into fiber-optic transmitters, optical mouse sensors and other equipment. It then became part of the Agilent Technologies Inc spinoff from Hewlett-Packard in 2000.

In 2005, a group of private-equity firms, including Silver Lake and KKR & Co, acquired the business for US$2.66 billion. They orchestrated an initial public offering for the company, which debuted on the Nasdaq Stock Market in 2009.

Avago was advised by Deutsche Bank AG, Bank of America Corp, Credit Suisse Group AG, Barclays Plc, and Citigroup Inc. Broadcom was advised by JPMorgan Chase & Co. Evercore Partners Inc and Centerbridge Partners also advised Broadcom.

BLOOMBERG