Avago Technologies To Buy LSI Corp. In $6.6 Bln Cash Deal

(RTTNews) - Singapore-based chip maker Avago Technologies Ltd. (AVGO) agreed Monday to acquire semiconductor company LSI Corp. (LSI) for $11.15 per share in an all-cash deal valued at $6.6 billion. The deal, which has the approval of boards of directors of both companies, is expected to close during the first half of calendar 2014.

"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," Avago President and CEO Hock Tan said in a statement.

The offer price represents a hefty 41 percent premium over LSI's closing stock price of $7.91 on Friday. San Jose, California-based LSI's stock is currently trading higher by 36.5 percent in early deals in a bid to match the offer price.

The closure of the deal is primarily subject to approval of LSI stockholders, and other regulatory approvals.

Avago said it intends to fund the deal with $1.0 billion of cash from the combined balance sheet and fully-committed financing, which will comprise of a $4.6 billion term loan from a group of banks; and a $1 billion investment from private-equity firm Silver Lake Partners.

The combination of Avago and LSI will creates a highly diversified semiconductor market leader with about $5 billion in annual revenues. The deal will add enterprise storage to Avago's existing wired infrastructure, wireless and industrial businesses, and position the combined company as a leader in enterprise storage.

Avago's chips are currently used in some Apple and Samsung products.

The deal will diversify Avago's revenue stream and scale up its offerings across multiple attractive end markets.

"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 additional value for stockholders," Tan added.

The deal is also expected to be significantly and immediately accretive to Avago free cash flow and adjusted earnings per share.

Further, it is expected to deliver annual cost savings at a run rate of $200 million by the end of the fiscal year ending November 1, 2015, the first full fiscal year after closing of the deal.

The companies have also agreed to a termination fee, whereby LSI will be obligated to pay Avago a termination fee of $200 million and Avago will be obligated to pay LSI a termination fee of $400 million upon termination of the merger agreement under certain specified circumstances.

AVGO closed Friday's regular trading session at $45.65, down $0.38 on a volume of 1.59 million shares, and LSI closed at $7.91, down $0.07 on a volume of 3.08 million shares.