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Avago Technologies Ltd has agreed on Thursday to buy Broadcom Corp for $37 billion in the most important merger of chip-makers in history, turning a not so well known company which is run by a ferocious deal-maker into one of the largest industry players.
Avago, which is active on the industrial and wireless markets, is giving Broadcom shareholders $17 billion in cash and also Avago shares that are valued at $20 billion.
Broadcom is famous for its connectivity chips. The devices are used in smartphones made by both Apple Inc and Samsung Electronics.
The deal is the largest so far made by Avago Chief Executive Hock Tan, who has turned a small chip-maker into a $36 billion firm by smart acquisitions since taking over the company nine years ago.
Tan, who is a serial deal-maker, has enhanced Avago’s portfolio by bankrupting units while buying up in faster-growing areas.
The future company, which will have its headquarters in Singapore and will be named Broadcom, will be the third-largest U.S. semiconductor producer by revenue, after Intel Corp and Qualcomm Inc. The merger is a huge deal for the market and is unlikely to be the last this year.
The $37 billion price is a premium of approximately 28 percent over Broadcom’s market value as of Tuesday’s close.
Demand for cheaper chips, but also for new products to be used on Internet-connected gadgets has steadily increased.
The Avago-Broadcom deal is the largest this year, after NXP Semiconductors’ $11.8 billion offer to purchase Freescale Semiconductor Ltd in March. Avago had also wanted to buyr Freescale.
Intel is in talks with chip-maker Altera Corp (ALTR.O) in a move which could surpass $10 billion. Until Thursday, Avago’s most important deal was with LSI Corp, which it purchased for $6.6 billion in 2014.
Tan’s strategy has been to move on potential companies which do not have the best strategic approach but have cost-cutting potential in order to build value.
Broadcom and Avago first announced about a potential merger back in October 2014 but the negotiations failed after the two parts failed to reach an agreement on the price. Talks resumed in April when Avago moved on Broadcom again with higher bids, and negotiations were prolonged until the two companies agreed on a merger.
Private equity firm Silver Lake Partners, an Avago investor and holder of a board seat, was involved with the company to aid evaluate Broadcom and finalize the deal.
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