Avago to pay $ 37 billion for chip rival Broadcom
Chipmaker Avago Technologies said Thursday that it has agreed to acquire Broadcom, a rival whose semiconductors are used in iPhones, set- top boxes for cable television and other devices, for $ 37 billion in cash and stock.
The companies have little overlap but could combine to offer a range of products to communications companies while gaining greater negotiating power with manufacturers. The combined company would have annual revenue of about $ 15 billion.
The deal is the latest in a wave of consolidation in the semiconductor sector as chipmakers look to grow and gain leverage in negotiations with their customers and components manufacturers.
“The combination of Avago and Broadcom creates a global diversified leader in wired and wireless communication semiconductors,” Avago President and CEO Hock Tan said in a news release. “Avago has established a strong track record of successfully integrating companies onto its platform.”
According to Bloomberg, the transaction is the biggest in the technology industry.
Broadcom, which is based in Irvine, was founded in 1991 by Henry Samueli, a professor at UCLA, and Henry Nicholas III, who left the company in
2003. Samueli, the owner of the Anaheim Ducks hockey team, serves as Broadcom’s chairman and chief technology officer.
Its products include chips that are used in a variety of technologies, including smartphones, modems and set- top boxes for satellite television. Broadcom posted revenue of $ 8.43 billion in 2014 and employs more than 10,000 people.
Avago, which has headquarters in Singapore and in San Jose, reported revenue of $ 4.3 billion from operations in its 2014 fiscal year, which ended in early November. It employed about 8,400 people as of November.
Avago was originally a part of Agilent Technologies, the former semiconductor arm of Hewlett- Packard. It was spun out in an initial public offering in 2009 by its owners, the privateequity firms Silver Lake Partners and Kohlberg Kravis Roberts.
The company, which specializes in chips for things like fiber- optic lines and lighting, has been active in buying companies since 2013, including striking a $ 6.6 billion deal in late 2013 for the LSI Corp., a manufacturer of networking and storage chips.
Its most recent acquisition was Emulex, a networking equipment and services company, that it agreed to buy for more than $ 600 million in February.
The deal for Broadcom is expected to close in the first quarter of next year and is subject to approval by shareholders and regulators. Under the terms, Avago would acquire Broadcom for $ 17 billion in cash and 140 million Avago shares.
Broadcom shareholders could elect to receive $ 54.50 in cash or roughly 0.44 of a share of a newly created holding company for each of their shares. Broadcom shareholders would own about 32 percent of the combined company.
Avago says it will fund the cash component of the deal with cash on hand and $ 9 billion in financing from a consortium of banks.
The companies have reportedly agreed on a breakup fee of about 3 percent. That’s in line with other takeovers, and implies a fee of about $ 1.1 billion based on the estimated deal value of $ 37 billion.
The cash option of the deal values Broadcom at about 24 times last year’s earnings before interest, taxes, depreciation and amortization, significantly higher than in recent acquisitions of semiconductor companies.
Tan would serve as president and CEO of the combined company. Samueli would be chief technology officer and a director. Nicholas is expected to serve in a strategic advisory role.
In other deals that illustrate the extent of consolidation in the sector, NXP Semiconductors agreed to buy Freescale Semiconductor for $ 11.8 billion in March. And Intel was reported to have held recent talks to buy Altera, whose chips are used in radios, automobiles and manufacturing.