On Thursday, May 28, Avago Technologies Limited (NASDAQ/AVGO) announced that it would acquire Broadcom Corp. (NASDAQ/BRCM) for $37.0 billion. (Source: Avago Technologies, May 28, 2015.)
Avago Technologies is a producer of semiconductors based in Singapore. Broadcom is also a semiconductor maker, headquartered in Irvine, California. As one of the largest semiconductor makers in the world, Broadcom’s clients include Amazon.com Inc. (NASDAQ/AMZN), Apple Inc. (NASDAQ/AAPL), and Samsung Electronics Co. Ltd. (KSE/005930.KS).
After a report by The Wall Street Journal on Wednesday, May 27 saying that the companies are in talks on the deal, shares of Broadcom surged more than 21% to $57.16. This is also its biggest increase since 2001. Avago shares also increased, gaining a solid 7.76% to $141.49.
To acquire Broadcom, Avago will offer $17.0 billion in cash, and roughly 140 million Avago ordinary shares, valued at $20.0 billion on May 27. The combined value of the two semiconductor makers is $77.0 billion.
Semiconductor Companies Combining
Avago has acquired many companies in recent years. Last year, it bought LSI Corp. for $6.6 billion. Early this year, it bought Emulex Corp. for about $600 million.
The $37.0-billion dollar deal will be the biggest among semiconductor companies, but it is not the first. Intel Corporation (NASDAQ/INTC) is still in talks to acquire Altera Corp. (NASDAQ/ALTR), while NXP Semiconductors NV (NASDAQ/NXPI) agreed to buy Freescale Semiconductor, Ltd. (NYSE/FSL) for $11.8 billion in March. (Source: Wall Street Journal, May 27, 2015.)
The semiconductor industry is seeing rising costs in production and design. Competition is getting stiffer while growth is slowing down. The industry trend pushes companies to combine, and investors welcome that.