Broadcom (BRCM) Stock Soars on Avago Technologies Takeover

Shares of Broadcom Corporation (BRCM) were trading up +0.55 or +0.95 percent to $57.70 per share in Thursday's premarket after Avago Technologies (AVGO) announced early this morning that it would be taking over the company in a transaction worth $37 billion. Avago stock soared on news of the takeover talks, rallying +10.23 or +21.81 percent to close at $57.15 per share in Wednesday's regular trading session.



Irvine, California based Broadcom Corporation was founded in 1991 by a Henry Samueli and Henry T.
Nicholas III, a student and professor at UCLA. The company is one of the top ten semiconductor vendors in the world by revenue. Broadcom's main products include wireless networks, integrated circuits, cable modems, network switches, GPS, mobile communications components, server farms and Bluetooth to name only a few. The company employs almost 11,000 people and had net income of $652 million on $8.4 billion in revenue in 2014.

Jointly headquartered in Singapore and San Jose, California, Avago Technologies was originally founded in 1961 as the semiconductor products division of Hewlett-Packard. The division was spun off along with Agilent Technologies in 1999. Kolberg Kravis, Roberts and Silver Lake Partners then acquired the division from Agilent for $2.6 billion forming Avago Technologies. The company had its initial public offering in 2009 after acquiring Infineon Technologies' acoustic wave business in 2009, when the company started trading on the Nasdaq exchange under the symbol AVGO.

The definitive agreement between the two companies, announced early this morning will have Avago acquire Broadcom for a combination of cash and stock. Under the terms of the deal, Avago will pay $17 billion in cash and the economic equivalent of about 140 million shares of Avago ordinary common shares with a value of $20 million as of yesterday's closing price for Avago stock.

Broadcom shareholders will have the option to receive for each share held either 1. $54.50 in cash; 2. 0.4378 shares in a newly formed holding company based in Singapore, a restricted equity security which is economically equal to 0.4378 ordinary shares of HoldCo and non-transferrable or salable for a period of two years after the close of the transaction; or 3. a combination of the two previous options.

Shareholder election will be prorated to achieve an aggregate payment of 50 percent cash and 50 percent stock. At the transaction close, Avago shareholders will exchange their ordinary shares for HoldCo shares on a one on one basis. Based on Avago's closing price on May 27th, the implied value of the deal is $37 billion.

Scott McGregor, President and Chief Executive Officer of Broadcom said in the press release that, "This transaction benefits all of Broadcom's key stakeholders. Our customers will gain access to a greater breadth of technology and product capability. For our shareholders, the transaction provides both compelling up-front value as well as the opportunity to participate in the future upside of the combined business.

Dr. Henry Samueli, Broadcom's co-founder Chairman of the Board and Chief Technical Officer said, "When Henry Nicholas and I founded Broadcom, we had a vision of creating the world leader in communications semiconductors. Today's announcement is a continuation of that vision and we could not think of a better partner for the future than Avago .

The deal is set to close by the first quarter of next year and is still subject to approval by regulators and shareholders. After the close of the transaction, Broadcom shareholders will be left with approximately 32 percent of the combined company. Broadcom shares were already up sharply in yesterday's regular trading session, while Avago shares are trading at $147.15 in this morning's premarket, up +5.66 or +4.0 percent.

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Published on May 28, 2015
By Jay Hawk
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.

Copyrighted 2016. Content published with author's permission.

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