Broadcom sold to rival for $37 billion in biggest tech deal ever

May 28, 2015
Updated May 29, 2015 8:39 a.m.


By MARGOT ROOSEVELT / STAFF WRITER


Broadcom co-founder Henry Samueli serves as Broadcom's chairman and chief technology officer.FILE: H. LORREN AU JR., STAFF PHOTOGRAPHER

About the companies

Broadcom Corp.
Headquarters: Irvine
Current CEO: Scott A. McGregor
Number of employees: 10,650 worldwide
Last year's revenue: $8.43 billion
Total stock market value: $33.6 billion

Avago Technologies Ltd.
Headquarters: Singapore and San Jose
Current CEO: Hock E. Tan
Number of employees: 8,400 worldwide
Last year's revenue: $4.3 billion
Total stock market value: $36.5 billion
Sources: company websites, Nasdaq, Bloomberg


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.

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. For 24 years, Broadcom has drawn on the region’s engineers and designers to create some of the world’s most advanced electronics.

The companies jointly announced they expect to save $750 million a year through “synergies” within 18 months of the deal’s closing. It is unclear how much of those savings might come from eliminating jobs in Orange County.

RELATED: Lansner: What does it mean for Orange County with Broadcom's sale to Avago?

Broadcom has 2,500 local employees and more than 10,000 worldwide.

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. 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. 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.”

The acquisition of Broadcom is the latest in a slew of semiconductor company deals in the past year, as investors have pushed companies to consolidate amid slowing revenue growth. Last year, Broadcom’s revenue grew just 1.5 percent, to $8.4 billion.

Under the deal, Avago President and Chief Executive Hock Tan would take the helm of the new company, which would rename itself Broadcom Ltd. Tan, 63, is a Malaysian native who attended the Massachusetts Institute of Technology and earned an MBA from Harvard University.

McGregor, 59, would leave the company. He would be eligible for a golden parachute of more than $67 million, according to the company’s latest proxy statement.

Broadcom’s co-founder and chairman, Henry Samueli, will be named chief technology officer of the combined company and join the board. Co-founder Henry Nicholas will serve in a strategic advisory role, according to a joint statement.

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.

“Some of that will come quick; some will come near the end of 18 months,” said Avago’s chief financial officer, Tony Maslowski.

Tan told analysts that between the two companies, “There are a lot of synergies and common culture and thinking.” He added that “with this broader portfolio of products under one umbrella, and a common customer base, we can add a lot more value to those key strategic ... customers.”

Among the company’s target customers are Apple, Samsung Electronics and other global companies.

The Broadcom deal comes in the wake of the recent takeover of Irvine’s pharmaceutical giant Allergan, which was acquired earlier this year for $66 billion by Dublin, Ireland-based Actavis Plc.

“Broadcom is a clean tech company with good white-collar jobs that sustain families,” said Paul Weisbrich, a Costa Mesa investment banker who specializes mergers and acquisitions and teaches at USC. “It is a pearl in a string of wonderful, unique California companies that are no longer headquartered here.”

Because of the way such acquisitions work, he said, “The profits that would stay here are now going to Singapore.”

At Broadcom’s headquarters Thursday, the mood was grim among employees milling around during their lunch break. None would give his name, but many expressed concern they would lose their jobs.

Avago will pay $17 billion in cash and roughly $20 billion in stock to Broadcom shareholders, who will end up with 32 percent of the combined company. Broadcom’s share price, which jumped 22 percent Wednesday on initial reports of the acquisition, slipped 1.6 percent Thursday to close at $56.25.

The Singapore company would finance the deal with $8 billion in existing cash and $9 billion in new debt. The combined company would end up with $15.5 billion in debt, including the refinancing of existing debt.

Avago, which also has a presence in San Jose, was once part of Agilent Technologies, which spun off from Hewlett-Packard in 1999. Avago went public in 2009 after incorporating in Singapore, which is known for having a low corporate tax rate.

In its last fiscal year, Avago had a tax rate of less than 10 percent. In contrast, the U.S. corporate tax rate is 35 percent, though Broadcom has paid far less than that in recent years.

Avago has embarked on a series of aggressive acquisitions in the past two years. Among them: Costa Mesa-based Emulex Corp. which it bought for about $600 million this year.

http://www.ocregister.com/articles/b...any-avago.html