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LSI Corporation (LSI) to be Acquired by Avago Technologies for $6.6 Billion

By: , dated December 17th, 2013

Shares of LSI Corporation (LSI) were up +3.05 or +38.6 percent to close at $10.96 per share on Monday, after news the company entered into an agreement to be taken over by Singapore based Avago Technologies Limited (AVGO) for $11.15 per share. The acquisition will create a highly diversified company, which will lead the semiconductor market with over $5 billion in annual revenues.

The all-cash transaction is valued at $6.6 billion and will add storage capacity to Avago’s wired infrastructure, wireless and industrial businesses. The new company will be in a strong position to take advantage of new opportunities in mobile data transfer and Internet Protocol data centers.

San Jose, California based LSI Corporation was originally founded as LSI Logic in 1981 by former Fairchild Semiconductor CEO Wilfred Corrigan. The company specializes in designing semiconductors and software for accelerated storage and datacenter networking, mobile networks and client computing.

The deal will be funded by Avago with a $4.6 billion loan from several banks along with a $1 billion investment from Silver Lake Partners, a private equity group, and $1 billion from Avago’s cash in hand. The $11.15 price for LSI is a 41 percent premium over last Friday’s closing price.

Avago, with headquarters in both Singapore and San Jose is a leader in the design and production of analog semiconductors. Avago said that the deal will immediately add to free cash flow and EPS, and could save as much as $200 million in annual costs by the end of its 2015 fiscal year, the first full year after closing the deal.

In a joint press release with Avago, LSI Chief Executive Abhi Talwalkar said that, “This transaction provides immediate value to our stockholders, and offers new growth opportunities for our employees to develop a wider range of leading-edge solutions for customers,” he continued, “Our leadership positions in enterprise storage and networking, in combination with Avago, create greater scale to further drive innovations into the datacenter.”

LSI’s revenue so far this year is down seven percent to $1.77 billion, while Avago’s revenue was up seven percent to $2.52 billion. Avago CEO Hock Tan, in the same press release stated that, “As we integrate LSI onto the Avago platform, we expect to drive LSI’s operating margins toward Avago’s current levels, creating significant additional value for stockholders.” He continued, 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.”

The transaction has already been approved by both board of directors and will be subject to approval in several jurisdictions, as well as LSI stockholders, with the deal being finalized sometime in the first half of 2014. With LSI still trading under the offering price, opportunities for getting in on the deal are still on the table.

Other News About LSI Corporation
Silver Lake backs Avago’s $6.6bn acquisition of LSI
Silver Lake will provide a seven year two per cent convertible issue for the deal.
LSI Introduces Axxia 4500 Family of ARM Technology-based Communication Processors
Axxia 4500 is LSI’s first ARM technology based communication processor.

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Jay Hawk Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

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