Avago Technologies Ltd (NASDAQ:AVGO) said today it would acquire LSI Corp (NASDAQ:LSI) for $6.6 billion with the help of a former owner.
This is the biggest acquisition in the history of Avago whose chips are used in Apple Inc. (NASDAQ:AAPL)’s products.
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Silverlake Partners to support the deal
The semi-conductor company Avago Technologies Ltd (NASDAQ:AVGO) turned to Silverlake who would invest $1 billion through a convertible note, supplementing a $4.6 billion loan from a group of banks. Silverlake’s seven-year note carries a coupon of 2% and converts to common stock at a price of $48.05, 5% over Friday’s closing price.
Interestingly, Avago Technologies Ltd (NASDAQ:AVGO) is the former HP semiconductor division and was part of the business spun out as Agilent Technologies in 1999. During 2005, Agilent and Avago split up in a $2.7 billion deal with Silverlake and another private equity firm, Kohlberg Kravis Roberts. It went public in 2009 and was one of the most successful IPOs after the financial crisis.
Silverlake sold the last of its holdings last year, but retained a seat on Avago Technologies Ltd (NASDAQ:AVGO)’s board. The transaction proved to be one of the most lucrative in Silverlake’s history by generating over 5-times the initial investment.
Avago to acquire at $11.15 per share
Avago Technologies Ltd (NASDAQ:AVGO)’s definite agreement to acquire LSI Corp (NASDAQ:LSI) would involve Avago paying $11.15 per share in an all-cash transaction. The acquisition is set to create a highly diversified semiconductor market leader with approximately $5 billion in annual revenues by adding enterprise storage to Avago’s existing wired infrastructure, wireless and industrial businesses. The deal would facilitate the combined entity to strongly position itself to capitalize on the growing opportunities created by the rapid increases in data center IP and mobile data traffic.
Apart from Silverlake’s $1 billion investment, Avago Technologies Ltd (NASDAQ:AVGO) intends to fund the deal with $1 billion of cash from the combined balance sheet and a further $4.6 billion through term loan from a group of banks.
Avago Technologies Ltd (NASDAQ:AVGO) indicated the deal would immediately add to fresh cash flow and earnings per share on an adjusted basis. The semi-conductor company indicated the deal would help save $200 million in annual costs by the end of the fiscal year, ending November 1, 2015, the first full fiscal year after the deal closes.