Avago agrees to buy Broadcom

Avago Technologies Ltd. (NASDAQ:AVGO) has announced its intention to buy fellow communications semiconductor company Broadcom Corp. (NASDAQ:BRCM) for $37 billion in cash and stock. Among other areas, Broadcom has been very active in developing silicon for DOCSIS and PON applications and thus would expand Avago's activities into technology for broadband networks. The combined company would become the third largest provider of communications semiconductors by revenues, behind Intel and Qualcomm. Broadcom currently is the fifth-largest at $8.5 billion, while Avago stands eighth at $6.6 billion. The combination would strengthen Avago's hand in silicon for infrastructure and networking as well as broadband access applications. In the broadband space, Broadcom has augmented its DOCSIS chip efforts with offerings for set-top boxes and home routers. It also participates in SCTE initiatives, including having a representative on the SCTE Engineering Committee (see "Two Steps forward for SCTE Standards"). In communications, Avago specializes in chips and other technology for data networks, wireless applications, and smartphones. It also provides technology for consumer, industrial, military, medical, automotive, lighting, and related applications. The companies expect to close the transaction by the end of the first quarter of calendar 2016. Hock Tan, president and CEO of Avago, will continue to serve in these roles for the combined company, which will operate as Broadcom Ltd. Dr. Henry Samueli, co-founder, CTO, and chairman of the board of Broadcom, will sit on the board of the combined company, as will another director from Broadcom. Dr. Samueli also will retain his CTO title. Dr. Henry T. Nicholas, co-founder and past CEO of Broadcom, will serve in a strategic advisory role, reporting to Tan. Avago expects to achieve $750 million of annual cost synergies within 18 months of the acquisition's close. The company anticipates it new assets to be immediately accretive to non-GAAP EPS and free cash flow. The agreement calls for Avago to pay $17 billion in cash consideration and the economic equivalent of approximately 140 million Avago ordinary shares, valued at $20 billion as of May 27, 2015. That would give Broadcom shareholders ownership of approximately 32% of the combined company. Broadcom shareholders will have the option of taking their "economic equivalent" in one of four ways $54.50 in cash, 0.4378 ordinary shares in a newly formed Singapore holding company ("HoldCo"), a restricted equity security that is the economic equivalent of 0.4378 ordinary shares of HoldCo that will not be transferable or saleable for a period of one to two years after closing, or a combination of these options. When the transaction closes, Avago shareholders will exchange their ordinary shares for HoldCo ordinary shares on a one-to-one basis. Meanwhile, the $17 billion of cash will come from a combination of cash on hand from the combined companies and $9 billion in new, fully committed debt financing from a consortium of banks.