Avago Technologies has reached an agreement to acquire Broadcom for $37 billion, creating a combined entity of $77 billion.
Avago Technologies Ltd. has declared that it will be acquiring Broadcom Corporation for around $37 billion in stock and cash. As per the news by Wall Street Journal the previous day, Avago Technologies. was already in talks with US semi-conductor giant. Both the companies have little overlay, regarding operations and product offerings. Avago can efficiently bolster its position in the industry by establishing a chip giant worth of $77 billion.
Lately, there has been a chain of mergers & acquisition in the semi-conductor space. Large semi-conductor companies are buying smaller competitors to establish cost saving interactions and efficiently enhancing their market position. Free Scale Semiconductor Limited was acquired by NXP Semi-conductors NV for around $11.8 billion during the start of the year. On the other hand, Intel Corporation -a Semi-conductor giant has offered a deal to purchase Altera Corp. for $54 a share. However, the deal was not successful because of the prices disagreement.
As per Bloomberg, Avago has decided to pay $20 billion in stock and $17 billion cash for the deal, which values Broadcom at $54.5 a share as it closed at $57.16 the other day. During after hour trading its share went up by 21%
Piper Jaffray analysts evaluated the US chipmaker, reaffirming a rating of Neutral on the stock.. The sell side company thinks that the merger of two giant companies makes a lot of sense, as Avago RF wireless division will support infrastructure segment of Broadcom that nearly contributes more than 31% to the whole revenue. During this year, Broadcom shares have gained 33%.
Avago Tech. will become the 6th largest semi-conductor company in the industry in terms of revenue. The Singapore based company previously acquired LSI Corp -a San Jose based company for almost $5.6 billion in 2013. Broadcom is much bigger than LSI corp., with $33.4 billion of market capitalization. The American chip manufacturer was able to post $8.4 billion in revenues last year, more than $4.9 billion recorded by Avago.
As per the deal, Broadcom investors will have 32% stake in the joined company. The current shareholders will basically have 2 options; for each share they have, they can chose to get $54.5 a share or almost 0.44 shares in the new combined company. Shareholders of Avago will be trading their shares on a 1 on 1 basis. As the $17 billion payment is concerned, Avago will be paying majority of it's with its cash reserves, whereas generating $9 billion from bank in debt financing.