Avago Technologies Ltd., which makes semiconductors for the cellular, automotive and defense industries, agreed to buy wireless chipmaker Broadcom Corp. for $37 billion in the biggest technology acquisition ever.
Avago will pay $17 billion in cash and $20 billion in stock, the companies said in a statement. The Singapore-based company’s offer values Broadcom at $54.50 a share in cash, compared with a closing price of $57.16 on Wednesday, when the stock rose the most since 2001 after reports of an imminent deal. The offer is 16 percent above where Broadcom’s shares closed Tuesday.
The stock fell 1.6 percent to $56.25 -- still above the offer price -- at the close Thursday in New York. Avago’s shares rose less than 1 percent to $142.38.
The transaction is the biggest in the technology industry, according to data compiled by Bloomberg.
Avago Chief Executive Officer Hock Tan said on a conference call that it would be hard for another company to match the bid though he remained “paranoid” there would be a competing offer.
The companies agreed on a breakup fee of about 3 percent, two people with knowledge of the matter said. That’s in line with other takeovers, and implies a fee of about $1.1 billion -- based on the deal value of $37 billion.
The purchase of Broadcom, the biggest maker of Wi-Fi chips for short-range connections in mobile devices, will create the world’s sixth-largest chipmaker by revenue. The deal is the latest in a round of consolidation in the $300 billion industry as the rising costs of production and design push manufacturers to combine. Avago’s broad portfolio of products are also used in networking gear and optical mice. The company has been at the forefront of the merger wave with several acquisitions, including its $5.6 billion purchase of LSI Corp. at the end of
2013. The flood of deals may be reaching its peak.
“I’ve got my misgivings, this feels very frothy for me,” said Alex Gauna, an analyst at JMP Securities in San Francisco. “This seems like a stretch.”
Broadcom, based in Irvine, California, represents a much bigger target for Avago. While Avago has a greater market value, at $36.3 billion, the wireless chipmaker had higher sales last year, with $8.4 billion, compared with its acquirer’s $4.9 billion.
A deal would be almost twice the size of NXP Semiconductors NV’s pending purchase of Freescale Semiconductor Ltd. for about $16.7 billion, including debt, announced in March.
In the deal, Avago will acquire Broadcom for cash and the economic equivalent of about 140 million Avago shares, valued at $20 billion as of Wednesday. Broadcom’s shareholders will own about 32 percent of the combined company, to be named Broadcom Ltd. Avago intends to fund cash part with cash on hand and $9 billion in new financing from a consortium of banks. The deal is expected to close in the first quarter of 2016.
Broadcom shares gained 22 percent on Wednesday, its biggest one-day gain and highest value since 2001. Avago increased 7.8 percent after the Wall Street Journal reported earlier that the companies were in advanced merger talks.
Broadcom is closing its unit that makes modem chips for mobile phones. That is reducing losses and expenses in a business that failed to gain significant market share from Qualcomm Inc.
Avago was founded in 1961 as an electronics division of Hewlett-Packard Co. 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
In 2005, a group of private-equity firms, including Silver Lake and KKR & Co., acquired the business for $2.66 billion. They orchestrated an initial public offering for the company, which debuted on the Nasdaq Stock Market in 2009.
Avago was advised by Deutsche Bank AG, Bank of America Corp., Credit Suisse Group AG, Barclays Plc, and Citigroup Inc. Broadcom was advised by JPMorgan Chase & Co. Evercore Partners Inc. and Centerview Partners also advised Broadcom.