LSI Board Sued Over Avago’s $6.6 Billion Takeover Offer

LSI Corp. (LSI)’s directors didn’t get the best price for the computer chipmaker in a $6.6 billion takeover by Avago Technologies (AVGO) Ltd. and structured the deal to unfairly bar competing bids, an investor said in a lawsuit.

The board of LSI, a maker of storage chips, is improperly favoring Avago’s $11.15-a-share cash offer by agreeing not to release other potential bidders from past confidentiality and standstill agreements, the investor, a Florida pension fund, said in a Delaware Chancery Court lawsuit.

“By contractually tying their hands, the board members have breached their fiduciary duty to maximize value in this all-cash sale,” attorneys for the City Orlando Police Pension Fund said in yesterday’s filing.

The suit challenges Singapore-based Avago’s biggest acquisition, which calls on the semiconductor maker to pay $1 billion in cash and use a $4.6 billion bank loan. Silver Lake Partners, a private-equity firm that helped acquire Avago before its 2009 initial public offering, will provide a $1 billion for the purchase of Milpitas, California-based LSI.

Avago is named as a defendant in the case for “aiding and abetting” the LSI directors’ allegedly improper conduct.

Brian Garabedian, an LSI spokesman, didn’t immediately return a call seeking comment on the pension fund’s suit. Avago officials didn’t return a call and an e-mail seeking comment.

Standstill Provisions

Avago may be interested in acquiring LSI to gain more resources as the cost of designing and building semiconductors rises, Suji De Silva, an analyst at Topeka Capital Markets Inc. in New York, said last month. Packaged together, some of the companies’ storage products may be more attractive to large Internet data-center operators, such as Google Inc. (GOOG), he said.

The Florida pension fund said Delaware judges have frowned upon the use of deal protections such as the “Don’t Ask, Don’t Waive” standstill provisions included in the LSI deal.

The provisions mean “other deep-pocketed suitors may be contractually prohibited for submitting a topping bid for LSI,” the fund said in the complaint.

Such provisions are at odds with corporate directors’ duty to obtain the best possible price for the company, Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, said in an interview. “That’s why judges don’t like them.”

H-P Division

The purchase would be the largest deal for Avago, which was founded in 1961 as an electronics division of Hewlett-Packard. 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. (KKR), acquired the business for $2.66 billion. They orchestrated an IPO for the company, which debuted on the Nasdaq Stock Market in 2009.

The case is City of Orlando Police Pension Fund v. Charles Haggerty, CA No. 9244, Delaware Chancery Court (Wilmington).

To contact the reporter on this story: Jef Feeley in Wilmington, Delaware at jfeeley@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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