Avago Technologies Ltd. (AVGO) said it has agreed to acquire storage semiconductor maker LSI Corp. (LSI) for $6.6 billion, creating a diversified component supplier of chips to OEMs in the enterprise, infrastructure, wireless and industrial markets.
The transaction is being backed by a group of banks and Silver Lake Partners, an investment firm that said it will invest $1 billion in Avago in exchange for the company’s preferred stock. The unidentified banks will give the company a $4.6 billion term loan to help finance the deal.
Avago’s executive said they believe the transaction will be immediately beneficial to its shareholders and open up growth opportunities as the company explores new markets. The company is expected to squeeze additional cost savings and benefits from the transaction by improving LSI’s operating margins, according to Hock Tan, president and CEO of Avago, in a statement.
“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,” stated Hock Tan, President and Chief Executive Officer of Avago. “This combination will increase the Company’s scale and diversify our revenue and customer base. 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.”
LSI Logic sells storage IC products to a range of companies involved in high-speed communications, flash storage, data networking and computing markets. The company has been struggling lately, though, with sales under pressure. It reported sales of $606.94 million in the September quarter, down from $623.96 million, in the year-ago quarter. Profits for the just-ended quarter were $36.56 million, or 7 cents per share, compared with $39.66 million in the September 2012 quarter.
Avago is paying a premium of more than 40 percent to LSI’s closing price as of Friday, December 13, when the shares closed at $7.91. The company said it is paying $11.15 per share for the all-cash transaction.
“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,” said Abhi Talwalkar, president and CEO of LSI. “Our leadership positions in enterprise storage and networking, in combination with Avago, create greater scale to further drive innovations into the datacenter.”