Broadcom to Acquire NetLogic Microsystems for $3.7 Billion

Broadcom Corp., the maker of communications chips, agreed to buy NetLogic Microsystems Inc. for about $3.7 billion in cash to gain processors used in data networks.

NetLogic shareholders will get $50 a share, the companies said today in a statement. That’s 57 percent more than Santa Clara, California-based NetLogic’s closing price on Sept. 9.

Broadcom, which makes chips for television set-top boxes, is using the deal to boost its customer base among companies that are building machinery to distribute video and other data-intensive content over the Internet. The purchase extends Broadcom’s product lineup with processors to manage data traffic.

“NetLogic had a great runway ahead of the company and Broadcom realized that,” said Gary Mobley, an analyst at Benchmark Co. in New York, who recommends buying both companies’ shares. “Broadcom obviously recognized that the equity value of NetLogic was underappreciated.”

NetLogic rose $15.96, or 50 percent, to $47.87 at 10:08 a.m. New York time on the Nasdaq Stock Market, and had gained 1.6 percent this year before today. Broadcom, based in Irvine, California, fell 20 cents to $33.24, and had lost 23 percent in 2011 before today.

Both boards have approved the deal, and the companies expect to close it in the first half of 2012. Broadcom said the acquisition will boost its 2012 earnings per share, excluding some items, by 10 cents. The company also reiterated its financial targets for this quarter.

‘Networking Opportunities’

Broadcom said the purchase more than doubles its addressable market in network infrastructure. NetLogic has increased sales for at least eight consecutive years as soaring Internet traffic boosted demand for wireless-network equipment.

Broadcom is paying 69 percent more than NetLogic’s average stock price over the 20 trading days before the announcement, according to Bloomberg data. The average premium for about 135 similar deals was 25 percent over the past five years, according to Bloomberg data.

“The premium is fair,” Broadcom Chief Executive Officer Scott McGregor said in an interview. “This acquisition expands our market into additional networking opportunities.”

The deal is the fourth-largest acquisition of a U.S. chipmaker in the past five years, and the second-largest this year after Texas Instruments Inc. agreed to buy National Semiconductor Corp. for about $6.5 billion in April, according to Bloomberg data.

NetLogic was advised by Qatalyst Partners, and Bingham McCutchen LLP was the legal counsel. Broadcom was advised by the law firm Skadden, Arps, Slate, Meagher & Flom LLP.