Avago Technologies to buy Broadcom in $37bn deal

Singapore-based chipmaker Avago Technologies has agreed to buy Broadcom Corp for $37bn in cash and stock, the companies said in a statement.

Avago will pay $17bn in cash and $20bn in stock.

The acquisition of Broadcom will create the world’s sixth-largest chipmaker by revenue and is the latest in a round of consolidation in the industry as rising production and design costs prompt manufacturers to join forces.

“The combined company will have the most diversified communications platform in the semiconductor industry, with combined annual revenues of approximately $15bn,” said the companies.

Avago president and chief executive officer Hock Tan 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,” he added.

Commenting on the deal, CLSA said: “We believe the combination makes sense given the similar end-market/customer exposure and limited product overlap.”

CLSA downgraded its stance on Broadcom to 'outperform' from 'buy', pointing to the strong run in the shares of late, but said the risk/reward is still favourable at current levels.

“For Avago, our analysis suggests 10-15% earnings per share accretion even with minimal synergies,” it said. “The company’s track record suggests additional synergies/divestitures are possible down the road.”