Two of the world’s leading communications semiconductor companies, Avago Technologies and Broadcom Corporation, have agreed to merge in a deal worth US$37bn. The pair have entered into a definitive agreement under which Avago will…
Two of the world’s leading communications semiconductor companies, Avago Technologies and Broadcom Corporation, have agreed to merge in a deal worth US$37bn.
The pair have entered into a definitive agreement under which Avago will acquire Broadcom for US$17bn in cash and US$20bn in stock.
On completion, the combined company will have an enterprise value of around US$77bn and be the third largest semiconductor company in the world behind intel and Qualcomm generating annual revenues of US$15bn. Annual cost synergies in the region of US$750m are expected to be achieved within 18 months.
Commenting on the transaction, Hock Tan, president and chief executive of Avago said: “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.”
Scott McGregor, president and CEO of Broadcom, added: “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.”
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. It is expected to be completed the first quarter of 2016. The merged company will be called Broadcom Limited with Tan its president and CEO.
Under the terms of the transaction, Broadcom’s shareholders have the option of receiving US$54.50 in cash, 0.4378 ordinary shares in Avago or a combination thereof for each common Broadcom share.
Ultimately Avago will pay US$17bn in cash and the economic equivalent of approximately 140 million Avago ordinary shares, valued at US$20bn. This will result in Broadcom shareholders owning approximately 32% of the combined company.
Avago intends to fund the cash consideration with cash on hand from the combined companies and US$9bn in new, fully-committed debt financing from a consortium of banks comprising BofA Merrill Lynch, Credit Suisse, Deutsche Bank, Barclays Bank and Citigroup.
The total financing is expected to be US$15.5bn, comprising the US$9bn of new term loans and US$6.5bn to refinance existing debt.
Both Avago and Broadcom’s products impact on the satellite sector. The former is a specialist in RF technology and secure communications, GPS receivers and satellite digital audio radio systems (SDARS). The latter is a leader in satellite set top box technology with customers including Arris and Pace. It has also developed a system-on-a-chip solutions for the fast growing internet of things and connected car sectors.
