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Avago to Buy Broadcom for $37B

In case you haven’t heard, scale is now the name of the game.

In a deal that puts it squarely in the cable tech sector, Avago Technologies said will acquire Broadcom for $37 billion, including $17 billion in cash and the economic equivalent of 140 million Avago ordinary shares valued at $20 million.

Under the deal, Broadcom shareholders are poised to own about 32% of the combined company, which will be named Broadcom Limited.  

In addition to adding Broadcom’s wireless technology and expertise, Avago, which is incorporated in Singapore, also stands to become a major player in cable, as Broadcom is a top supplier of set-top box chips, including those based on the Reference Design Kit and that integrate Multimedia over Coax Alliance (MoCA) capabilities, and silicon that powers DOCSIS-based cable modems and gateways, as well as DSL and fiber-to-the-home equipment.  

With respect to DOCSIS, Broadcom is one of three chipmakers known to be developing modem chips for DOCSIS 3.1, the emerging CableLabs-specified platform that will bring multi-gigabit speeds to HFC networks. Intel, which acquired Texas Instruments’ cable modem business in 2010, and STMicroelectronics are the other two that are working on D3.1-based chips. Broadcom unveiled at D3.1-based reference design, the BCM93390, in January.

Avago estimates that the deal, which will build on its wireless, enterprise storage and wired infrastructure chip business, will create a behemoth with a combined $77 billion enterprise value and combined annual revenues of about $15 billion. Avago estimates that the merger will also generate $750 million in annual cost synergies that can be achieved within 18 months. The deal is posed to be immediately accretive to non-GAAP earnings and free cash flow.

When the deal closes, Hock Tan, president and CEO of Avago, will serve in the same role at the combined company, which will be renamed Broadcom Limited. Dr. Henry Samueli, co-fonder and CTO and chairman of Broadcom, will join the board of and serve as CTO of the combined company. Dr. Henry T. Nicholas, co-Founder and past CEO of Broadcom, will serve in a strategic advisory role, reporting to Tan. They did not identify a post-closing role for Scott McGregor, Broadcom’s current president and CEO.

Avago and Broadcom said the deal has been unanimously approved by their respective boards and a special committee of the independent directors of Broadcom. They expect to deal to close before the end of Q1 2016.

"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," Tan said in a statement. "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."

"When Henry Nicholas and I founded Broadcom, we had a vision of creating the world leader in communications semiconductors. Today's announcement is a continuation of that vision and we could not think of a better partner for the future than Avago," added Samueli

"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," Nicholas said. "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 realize its potential to be the world's greatest semiconductor company."