Broadcom sold to rival in biggest tech deal ever

29 May 2015 | Author: | No comments yet »

Avago buys Raspberry Pi chipmaker Broadcom in landmark $37bn deal.

The purchase of Irvine’s Broadcom Corp. by Singapore-based Avago Technologies is the largest acquisition of a technology company on record and will create a sprawling global company with the most diversified platform in the semiconductor industry.Analysts continue to ponder yesterday’s announcement by Avago Technologies (AVGO) of the biggest tech deal ever, a $37 billion cash and stock purchase of Broadcom (BRCM).

The harsh reality of today’s business world, particularly in technology industries, is that ever-pressing question: “What have you done for me lately?” Sure, the Irvine-based chipmaker had carved out a high-profile niche in the communication technology world, worth $8 billion in annual sales. Although many details of the $37 billion deal have yet to be revealed, it likely means that Orange County will say goodbye to the headquarters of its largest public company.

Intel (INTC) is hovering in the background, of course, and some think the company could make a competing bid, even as the focus today returns to its rumored interest in Altera (ALTR). Nicholas III had at least two things to celebrate Thursday — the sale of his company for $37 billion to a rival chipmaker, and his son Matthew’s high school volleyball team playing in the CIF regional semifinals. “Today, I’m like giddy,” Nicholas, whose son plays for St.

The Financial Times’s James Fontanella-Khan reports a short while ago Intel is “nearing a deal” to buy Altera for “as much as $15 billion,” citing multiple unnamed sources. Broadcom is best known as the employer of Raspberry Pi founder Eben Upton and the manufacturer of the ARM-based chips that power the credit card-size PC.

Avago has unique “earnings leverage” through its large and efficient model that includes lean operating expenses and a low tax rate out of its Singapore headquarters. The transaction is expected to close by the end of March 2016, and is subject to regulatory approval across various jurisdictions, as well as the approval of Avago’s and Broadcom’s shareholders.

Riley & Co.’s Craig Ellis, who has Buy ratings on both Broadcom and Intel, writes that Intel could make the same argument for “synergy” with Broadcom as Avago is making: Since early-April we’ve asserted BRCM had compelling strategic value to INTC, with Infrastructure powerfully scaling DCG’s tiny but strategically vital presence while Broadband would add material growth to flattish PCG. Amid much fanfare, the company had broken ground in March on a 73-acre campus near Irvine’s Great Park, intended to accommodate up to 8,000 workers. Intel needs “to fill its fabs and get the ‘margin stacking’ benefit from bringing outsourced production in-house,” while Microchip is looking “annuity-like businesses to return more cash to shareholders. While we believe the C17 Purley enterprise server MPU roadmap offers interesting strategic justification for an INTC for ALTR move, INTC could arguably drive 2.5x the portfolio scale with BRCM, though would arguably leave some longer-term server MPU roadmap control in the hands of others. We are in striking distance of that now.” Nicholas started the company out of his Westside condo and later moved it to small offices in Westwood and then to it larger facilities in Irvine.

Hock Tan, president and CEO of Avago, lauded the deal as a “landmark transaction” for the industry, saying: “Today’s announcement marks the combination of the unparalleled engineering prowess of Broadcom with Avago’s heritage of technology from HP, AT&T and LSI Logic, in a landmark transaction for the semiconductor industry. That $738 million project will go forward, a company spokeswoman said, though she did not elaborate on whether it would be as large as originally planned. “This transaction benefits all of Broadcom’s key stakeholders,” said Scott McGregor, president and chief executive of Broadcom. “Our customers will gain access to a greater breadth of technology and product capability. The Strategic fit is interesting as a product line extension play with little portfolio and roadmap overlap, creating a leading infrastructure chip supplier behind INTC’s DCG but with vastly greater product line and customer diversity. He said Avago’s announced acquisition reminded him of when Broadcom went public in 1998. “When we went public, it was like, ‘OK, we’ve got liquidity, but we’re still the same company,’ ” he said. “This time, we’ve still got the same company, but we just got stronger. …

Henry Samueli, co-founder and chief technical officer at Broadcom, said: “When [CEO] Henry Nicholas and I founded Broadcom we had a vision of creating the world leader in communications semiconductors. For example, AVGO’s comms and enterprise storage groups could be complimented by BRCM’s leading Infrastructure and Networking biz, FBAR+front end smartphone leverage would be enhanced with leading combo connectivity, while a flagship desktop HDD businesses is enriched by STB and broadband access exposure. For technology companies that can’t keep up, deal-making can create size or savings in the highly competitive communications business that touches everyone’s everyday lives. He said: “In Avago, we have found a culture and a management team that embody the best of the philosophies on which Broadcom was founded, together with the fast-paced, no-nonsense, process-driven business culture that we need to take our combined company to the next level. “I am confident that, under the visionary leadership of Hock Tan, the combined company will realise its potential to be the world’s greatest semiconductor company.” µ

It’s really exciting.” Nicholas, whose sister Marsy was slain by her ex-boyfriend in 1983, has spent much of his time and effort in recent years on victims’ rights projects and legislation. Brean Capital‘s Mike Burton, who has a Buy rating on Avago shares, thinks Intel and Qualcomm (QCOM) already decline to bid: “With regard to competitive bids, we believe other acquirers Intel and Qualcomm have likely already had the chance to evaluate a potential bid.” It’s unclear if Broadcom already held discussions with either party, and we can’t rule out the possibility of a counter offer, especially from Qualcomm. He said he plans to continue to focus on that, but hinted that he also might find a role with the merged company. “I think Broadcom single-handedly took Orange County and made it the technology mecca it is today,” Nicholas said. “We were unique in that we were very much focused on recruiting.

One analyst estimated the effort cost Broadcom $3 billion. “The journey is not over,” Broadcom CEO Scott McGregor told analysts Thursday. “Our industry is changing. Intel shares today are up 41 cents, or 1.2%, at $34.42; Altera (ALTR) is up $2.01, or 4%, at $48.98; Broadcom is up 43 cents, or 0.8%, at $56.68, and Avago is up $3.67, or 2.6%, at $146.05. Although the two companies make different products, such functions as sales, administration and engineering support could be targeted for cutbacks, Avago executives said in a call with financial analysts.

Companies balloon to a scope where deal-making looks appetizing. “When you get to the size of Intel or Qualcomm or Broadcom, organic growth becomes tough to get,” Craig says. “You just can’t grow that fast.” Sadly, Broadcom’s decision to sell is also part of a long-running trend in Orange County’s high-tech community. Craig is convinced that the people Broadcom lets go – and those who don’t want to toil in an even larger corporate workplace – will generate a wave of new startups in Orange County.

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