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Avago Technologies Limited and LSI Corporation have announced a definitive agreement whereby Avago will acquire LSI for $11.15/share; this being an all-cash transaction with a value of approximately $6.6 billion. Avago is a global producer and supplier of analog semiconductor devices, offering thousands of products for wireless communication, wired infrastructure, and industrial (and other) markets. By adding LSI’s enterprise storage products and expertise, the combined companies will have approximately $5 billion in annual revenues. The Avago / LSI combination will be uniquely positioned to take advantage of strong growth in mobile data traffic and data center IP.
The agreement will see LSI stockholders receive $11.15 in cash per share of LSI common stock held at closing, which is anticipated to finalize during the first half of 2014. Avago intends to utilize a total of three sources to fund the transaction:
* $1.0 billion cash from the combined balance sheet
* $4.6 billion from a term loan with a group of banks
* $1.0 billion in investment from Silver Lake Partners, expected to be in the form of a 2% convertible note with a conversion price of $48.04/share, or preferred stock with equivalent economic terms.
According to Hock Tan, President and Chief Executive Officer of Avago, “This highly complementary and compelling acquisition positions Avago as a leader in the enterprise storage market and expands our offerings and capabilities in wired infrastructure, particularly system-level expertise. This combination will increase the Company’s scale and diversify our revenue and customer base. In addition to these powerful strategic benefits, as we integrate LSI onto the Avago platform, we expect to drive LSI’s operating margins toward Avago’s current levels, creating significant added value for stockholders.”
Abhi Talwalkar, President and Chief Executive Officer at LSI, states that “This transaction provides for our employees to develop a wider range of leading-edge solutions for customers. Our leadership positions in enterprise storage and networking, in combination with Avago, create greater scale to further drive innovations into the datacenter.”
The acquisition is anticipated to be immediately beneficial to Avago’s cash flow and earnings per share. Avago expects to achieve annual cost savings of $200 million by November 1, 2015, which is the end of the first full fiscal year after closing of the transaction. The transaction has been approved by both companies’ boards of directors, and is of course subject to customary regulatory approvals from multiple jurisdictions, other customary closing conditions, as well as approval by LSI stockholders.
The LSI/Avago press release can be viewed in its entirety here.