Avago Technologies To Buy Broadcom For $37 Bln

(RTTNews) - Avago Technologies Ltd. (AVGO) will acquire Broadcom Corp. (BRCM) for $37 billion in cash and stock, the two chipmakers said Thursday. The deal marks further consolidation in the semiconductor industry as rising costs and weak revenue growth force chipmakers to combine.

In a separate statement, Avago reported a profit for the second quarter that more than doubled from last year. Earnings per share for the quarter beat analysts' estimates.

Singapore-based Avago is a supplier of a broad range of analog semiconductor devices,with a focus on III-V based products as well as complex digital and mixed signal CMOS based devices.

Irvine, California-based Broadcom makes communications chips for smartphones and tables as well as provides chips for electronic switching gear, Wi-Fi and broadband connections.

Under the terms of the deal, Avago will acquire Broadcom for $17 billion in cash and the economic equivalent of about 140 million Avago ordinary shares that are valued at $20 billion as of May 27, 2015. This will result in Broadcom shareholders owning about 32 percent of the combined company.

For each Broadcom share held by them, Broadcom's shareholders can elect to receive $54.50 in cash; 0.4378 ordinary shares in a newly-formed Singapore holding company or 'HoldCo; a restricted equity security 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 thereof.Upon

closing of the transaction, Avago shareholders will exchange their ordinary shares for HoldCo ordinary shares on a one to one basis.

The transaction values the combined company at $77 billion in enterprise value, with annual revenues of about $15 billion following completion of the acquisition.

Avago plans to fund the cash consideration of the acquisition with cash on hand from the combined companies and $9 billion 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, but is subject to approval by Avago's and Broadcom's shareholders. The deal is expected to close by the end of the first calendar quarter of 2016.

Avago noted that Samueli and Nicholas, the founders of Broadcom, have signed support agreements to vote to approve the transaction. Following completion of the transaction, Avago's President and Chief Executive Officer Hock Tan will continue to serve as President and CEO of the combined company, which will adopt the name Broadcom Limited.

Samueli and another director from Broadcom will join the board of the combined company. In addition, Samueli will be appointed chief technology officer of the combined company. Nicholas will serve in a strategic advisory role within the combined company, reporting to Tan.

Among other deals in the semiconductor industry, mixed signal solutions provider NXP Semiconductors N.V. (NXPI) said in March that it has agreed to buy embedded processing solutions provider Freescale Semiconductor Ltd (FSL) for about $16.7 billion in cash and stock, including Freescale's net debt of $4.9 billion.

The world's largest chipmaker Intel Corp. (INTC) and programmable chip maker Altera Corp. (ALTR) have reportedly resumed talks on a potential deal of more than $13 billion after it was stalled in early April.

Separately, Avago Technologies reported an increase in second-quarter net income to $344 million or $1.21 per share from $158 million or $0.61 per share in the same quarter last year.

Adjusted income from continuing operations for the quarter was $620 million or $2.13 per share, compared to $223 million or $0.85 per share in the year-ago period.

On average, 20 analysts polled by Thomson Reuters expected the company to report earnings of $2.01 per share for the quarter. Analysts' estimates typically exclude special items.

Net revenue for the quarter more than doubled to $1.61 billion from $701 million in the same quarter last year. Adjusted revenue was $1.65 billion, compared to $701 million in the year-ago period. Analysts expected revenue of $1.64 billion for the quarter.

AVGO is trading at $137.84, down $3.65 or 2.58 percent on a volume of 10.87 million shares.

BRCM is trading at $55.08, down $2.07 or 3.63 percent on a volume of 35.26 million shares.