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Avago to acquire Broadcom for $37bn

Steve Rogerson
June 5, 2015
 
Avago Technologies has bid $37bn to acquire Broadcom in a cash and stock transaction that values the combined company at $77bn in enterprise value. Upon completion, the combined company will have annual revenues of approximately $15bn.
 
"Today's announcement marks the combination of the unparalleled engineering prowess of Broadcom with Avago's heritage of technology from HP, AT&T and LSI Logic, in a landmark transaction for the semiconductor industry," said Hock Tan, president and chief executive officer of Singapore-based Avago. "The combination of Avago and Broadcom creates a global diversified leader in wired and wireless communication semiconductors. Avago has established a strong track record of successfully integrating companies onto its platform. Together with Broadcom, we intend to bring the combined company to a level of profitability consistent with Avago's long-term target model."
 
Following completion of the transaction, Tan will continue to serve as president and chief executive officer of the combined company, which will trade under the name Broadcom.
 
Scott McGregor, president and chief executive officer of California-based Broadcom, said: "This transaction benefits all of Broadcom's key stakeholders. Our customers will gain access to a greater breadth of technology and product capability. For our shareholders, the transaction provides both compelling up-front value as well as the opportunity to participate in the future upside of the combined business."
 
Henry Samueli, co-founder, chief technical officer and chairman of the board of Broadcom will join the board of the combined company as will another director from Broadcom. In addition, Samueli will be appointed chief technology officer of the combined company.
 
"When Henry Nicholas and I founded Broadcom, we had a vision of creating the world leader in communications semiconductors,” said Samueli. “Today's announcement is a continuation of that vision and we could not think of a better partner for the future than Avago."
 
Nicholas, co-founder and past CEO of Broadcom, will serve in a strategic advisory role within the combined company, reporting to Tan.
 
"The culture that Henry and I created when we founded Broadcom was demanding, execution-oriented and certainly not guaranteed to mesh with the average technology company," said Nicholas. "It was, however, a culture that enabled Broadcom to grow exponentially and emerge as the market leader in every major market segment involving broadband communications. In Avago, we have found a culture and a management team that embody the best of the philosophies on which Broadcom was founded, together with a fast-paced, no-nonsense, process-driven business culture that we need to take our combined company to the next level. I am confident that, under the visionary leadership of Hock Tan, the combined company will realise its potential to be the world's greatest semiconductor company."
 
Under the terms of the agreement, Avago will acquire Broadcom for $17bn in cash consideration and the economic equivalent of approximately 140 million Avago ordinary shares, valued at $20bn, resulting in Broadcom shareholders owning approximately 32% of the combined company. The implied value of the total transaction consideration for Broadcom is $37bn.
 
Avago intends to fund the $17bn with cash on hand from the combined companies and $9bn in new, fully-committed debt financing from a consortium of banks.
 
The transaction has been unanimously approved by the boards of directors of both companies, as well as a special committee of the independent directors of Broadcom. Samueli and Nicholas have signed support agreements to vote to approve the transaction. Closing of the transaction is expected early in 2016, and is subject to regulatory approvals in various jurisdictions, as well as the approval of Avago's and Broadcom's shareholders.