Avago Technologies to Pay $37 Billion for Chipmaker Rival Broadcom

(Los Angeles Times/TNS) -

Broadcom Corp. has agreed to be acquired by Avago Technologies Inc. for $37 billion in cash and stock, creating a giant in the business of supplying the technological infrastructure behind a range of common products, from smartphones to wireless networks to cloud computing.

The blockbuster deal, announced early Thursday, is part of a rapid consolidation in the semiconductor industry and creates a company with a combined market value of $77 billion and combined revenues of $15 billion.

The deal marks the end of its days as a public company for Irvine, Calif.-based Broadcom. Founded in 1991 in a condominium by Henry Samueli, a UCLA professor, and a star student, Henry T. Nicholas III, the company now employs more than 10,000, more than 75 percent of them engineers.

“When Henry Nicholas and I founded Broadcom, we had a vision of creating the world leader in communications semiconductors,” Samueli, who serves as Broadcom chairman and chief technology officer, said in a statement. “Today’s announcement is a continuation of that vision and we could not think of a better partner for the future than Avago.”

Avago is about half Broadcom’s size by annual revenue, but its market value at Wednesday’s close was about $34 billion, compared with $28 billion for Broadcom. Some analysts figured Broadcom could be in play, but the idea of Avago taking it over caught them off-guard.

“We are surprised because Broadband would be a very big fish for Avago,” said analyst Brian Colello of investment-research firm Morningstar Inc. “Avago is at the forefront of trying to get bigger and break into new markets and (is) willing to pay for it.”

Stocks of both companies soared Wednesday in anticipation of one of the largest deals in the latest consolidation of the chip industry. Broadcom’s stock jumped $10.09, or 21.5 percent, to $57.15 a share in Nasdaq Stock Market trading after The Wall Street Journal first reported the potential merger talks Wednesday. Avago’s stock advanced $10.19, or 7.8 percent, to $141.49 a share.

The deal to buy Broadcom is the latest in a series of aggressive acquisitions by Avago, based in Singapore with executive offices in San Jose, Calif. This month, it bought networking-products maker Emulex Corp. of Costa Mesa, Calif., for about $606 million.

Broadcom also is a major provider of chips for more complex systems such as electronic switching gear, wi-fi, automotive systems and broadband connections. Broadcom last year earned $652 million on revenue of $8.4 billion; it counts Amazon.com, DirecTV and Dell Computer among its customers.

Despite the growth of the digital and telecommunications markets, the chip industry “is not growing at double digits” anymore, and that’s helping spawn the industry’s consolidation, said analyst Stacy Rasgon of investment firm Sanford C. Bernstein.

Chip giant Intel Corp. reportedly is in talks to acquire Altera Corp., and Dutch chip maker NXP Semiconductors has agreed to buy Freescale Semiconductor Ltd. in Texas for nearly $12 billion.

Avago formerly was part of Agilent Technologies, which itself had been part of Hewlett-Packard Co. until Avago was spun off in 2005.

The company focuses on semiconductors for data storage, wireless communications and industrial markets, among others.