Avago Technologies Ltd Acquires Broadcom Corporation

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Singaporean semiconductor maker Avago Technologies announced on Friday that it was acquiring rival Broadcom in a cash and stock deal. Analysts say that the $37 billion price tag on the merger makes it one of the largest ever in the semiconductor sector.

Broadcom slipped 1.8% to $56.13 in premarket trading Thursday after skyrocketing 21% on Wednesday after The Wall Street Journal reported the a deal was close. Avago was up 1.3% in the premarket after enjoying a 7.8% gain on yesterday.

Details on the Broadcom – Avago deal

Avago will pay $17 billion in cash and about $20 billion of its own shares. The firm has $8 billion cash on hand and has lined up an additional $9 billion in debt financing.

Broadcom shareholders will receive $54.50 a share in cash or about 0.44 shares in a new Singapore holding company, as well as other options. Former Broadcom shareholders will own close to 32% of the combined company.

The deal is projected to be completed in the first quarter of next year, and afterwards the company will use the name Broadcom Ltd., while continuing to be led by current Avago Chief CEO Hock Tan.

The new firm will bring in close to $15 billion in annual revenue. The merger, which will immediately add to earnings and free cash flow at Avago, is also anticipated to result in around $750 million in cost savings a year (within 18 months after deal closing). The combined company will be more able to compete with semiconductor industry giants like Intel and AMD.

More on Broadcom

Broadcom was founded by Henry Samueli (who is still chairman and CTO), and Henry Nicholas III, an ex-CEO who moved out of active management in 2003. According to company filings, Nicholas held about 25% of Broadcom’s voting shares as of the end of March and Samueli held close to 22%. Of note, both men have agreed to vote to approve the merger.

Samueli has also been tapped to join the board of the new company, as will one other director from Broadcom. Furthermore, Samueli will also be named chief technology officer of the combined entity.  Nicholas will continue to serve in an advisory role for the new firm.

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