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It's Official: Avago Buys Broadcom In $37 Billion Deal, Thousands In Employee Layoff "Synergies" Imminent
As the WSJ reported yesterday when it sent the semiconductor space soaring, moments ago Avago (21x EV/EBITDA) confirmed it would buy Broadcom (19x EV/EBITDA) for $37 billion. The reason for the deal: as the WSJ noted yesterday, "growth has been hard to come by for Broadcom, a 24-year-old company that makes communications chips for tablets and smartphones, and supplies the Internet links for cable-television and telecommunications devices." Or, in other words, only a delusional, yield-chasing bond holder would be willing to fund (with other people's money) the 18.9x Broadcom EV/EBITDA take out price and just like in the oil and E&P space, when organic growth dries out, there is always zero cost debt to extend the dream a little longer.
Neither Avago nor Broadcom has the kind of dominance over individual markets that better-known rivals such as Intel Corp. and Qualcomm Inc. enjoy, and a merger could help address that. In addition to consumer applications, Broadcom supplies the vast majority of chips used in the latest networking switches found in corporate data centers, a fast-growing business that could enhance Avago’s communications-focused revenue stream.
Broadcom was co-founded by a team led by engineers Henry Samueli, who remains chairman and chief technology officer, and Henry Nicholas III, a former chief executive who stepped down in 2003. Mr. Nicholas held about 25% of Broadcom’s voting shares as of the end of March, according to the company’s most recent proxy statement. Mr. Samueli held about 22%.
Avago once was part of Agilent Technologies Inc., which spun off from H-P in 1999. Agilent later sold what’s now Avago to private-equity firms Silver Lake, and KKR & Co. in a $2.66 billion buyout.
As to why Avago is likewise excited to close the deal, "Avago has been likened to health-care companies such as Valeant Pharmaceuticals International Inc. that are based in foreign tax jurisdictions and also have become voracious acquirers."
As such Broadcom is merely the latest notch on the bedpost, funded of course with billions in new debt.
As for Broadcom's 10,650's employees and Avago's 8,400 workers, please familiarize yourselves with the definition of "synergies" of which the combined company says there will be some $750 million in 18 months which should translate to about 2-3,000 pink slips.
* * *
Here are the transaction details from the press release:
- Creates the world's leading diversified communications semiconductor company
- Transaction consideration of $17 billion in cash and equity valued at approximately $20 billion as of May 27, 2015
- $750 million of projected annual cost synergies expected to be achieved within 18 months
- Immediately accretive to non-GAAP EPS and free cash flow
Avago Technologies Limited (AVGO) and Broadcom Corporation (BRCM) today announced that they have entered into a definitive agreement under which Avago will acquire Broadcom in a cash and stock transaction that values the combined company at $77 billion in enterprise value. Upon completion of the acquisition, the combined company will have the most diversified communications platform in the semiconductor industry, with combined annual revenues of approximately $15 billion.
"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," said Hock Tan, President and Chief Executive Officer of Avago. "The combination of Avago and Broadcom creates a global diversified leader in wired and wireless communication semiconductors. Avago has established a strong track record of successfully integrating companies onto its platform. Together with Broadcom, we intend to bring the combined company to a level of profitability consistent with Avago's long-term target model."
"This transaction benefits all of Broadcom's key stakeholders," remarked Scott McGregor, President and Chief Executive Officer 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."
"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," stated Dr. Henry Samueli, Co-Founder, Chief Technical Officer and Chairman of the Board of Broadcom.
"The culture that Henry and I created when we founded Broadcom was demanding, execution-oriented, and certainly not guaranteed to mesh with the average technology company," said Dr. Henry T. Nicholas, Co-Founder and past CEO of Broadcom. "It was, however, a culture that enabled Broadcom to grow exponentially and emerge as the market leader in every major market segment involving broadband communications. 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 a 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 realize its potential to be the world's greatest semiconductor company."
Following completion of the transaction, Mr. Tan, President and Chief Executive Officer of Avago, will continue to serve as President and Chief Executive Officer of the combined company, which will adopt the name Broadcom Limited. Dr. Samueli will join the board of the combined company as will another director from Broadcom. In addition, Dr. Samueli will be appointed Chief Technology Officer of the combined company. Dr. Nicholas will serve in a strategic advisory role within the combined company, reporting to Mr. Tan.
Transaction Structure and Terms
Under the terms of the definitive agreement, Avago will acquire Broadcom for $17 billion in cash consideration and the economic equivalent of approximately 140 million Avago ordinary shares, valued at $20 billion as of May 27, 2015, resulting in Broadcom shareholders owning approximately 32% of the combined company. Based on Avago's closing share price as of May 27, 2015, the implied value of the total transaction consideration for Broadcom is $37 billion.
Holders of outstanding shares of Broadcom will have the ability to elect to receive, for each Broadcom share held: (i) $54.50 in cash; (ii) 0.4378 ordinary shares in a newly-formed Singapore holding company ("HoldCo"); (iii) a restricted equity security that is the economic equivalent of 0.4378 ordinary shares of HoldCo that will not be transferable or saleable for a period of one to two years after closing; or (iv) a combination thereof. The shareholder election will be subject to a proration mechanism, which is anticipated to result in payment in the aggregate in the range of 50% cash and 50% equity in the transaction. Upon closing of the transaction, Avago shareholders will exchange their ordinary shares for HoldCo ordinary shares on a one to one basis.
No trading market is expected to develop for the restricted equity. The receipt of the restricted equity is expected to be tax free to former Broadcom shareholders, and if a requested tax ruling is obtained from the IRS, the receipt of HoldCo ordinary shares will also be tax free to the Broadcom shareholders. Receipt of HoldCo ordinary shares by former Avago shareholders is expected to be tax free.
Avago intends to fund the $17 billion of cash consideration with cash on hand from the combined companies and $9 billion in new, fully-committed debt financing from a consortium of banks.
The transaction has been unanimously approved by the boards of directors of both companies, as well as a special committee of the independent directors of Broadcom. Dr. Samueli and Dr. Nicholas, the founders of Broadcom, have signed support agreements to vote to approve the transaction. Closing of the transaction is expected by the end of the first calendar quarter of 2016, and is subject to regulatory approvals in various jurisdictions, as well as the approval of Avago's and Broadcom's shareholders.
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Dog eating Dog.............to survive!
At the industry level, it's snake eat tail.
Gotta get my Nokia...
Merger mania strikes again cause there's no real growth now
Clearly having an MBA is not what it used to be, and is more over-rated than ever.
All you need is:
Start-Up Phase: have good-sounding concept, create name/ID/logo that's trendy and appealing to Globalists. Get Angel seed money.
Strategic Planning: Intent on getting to IPO for Members and Wall St pals to cash in. Hum to self pop song: "It's all about the bass, the bass, no trouble. I know I lie, my lips are moving..."
Staff: Small group of Members* is Domestic (for PR and Gov purposes). Key worker bees are young, blue-eyed grads, eager to start on Ground Floor, and get Stock Options that could be cashed for high 6 to low 7 figures. Everyone else is on a Student Visa (moon-lighting while still in school) and/or Offshore (India or 'Lower Slabovia').
* Members are CEO/Pres, and few EVP's (COO, CFO, CTO). Top 2-3 guys own majority of fiat Stock. Learn all the MBA and BizTalk lingo and trendy buzzwords (on w/e seminar and online).
Marketing: 4 P's (Product, Price, Place, Promotion). Flip through trendy Marketing books at bookstore, for ideas. Join Club of Special people (preferable Self-Chosenites), and leverage them.
Sales: MLM/Direct, Online Advertising: Leverage the MSM cronies (Cramer), Social Media Warehouse: From 'Factory' to Consumer, via UPS/FedEx/DHL.
Rollout: Introduce 'Product' during Tradeshow, with lotsa Buzz from new BFF's in MSM (fellow 'Club' members). Create Social Media buzz via innovative, appealing YouTube clip(s).
Pre-IPO Growth: Do what Wall St or Shark Tank guys tell you to do. They know better than you do, and it's "free" (as long as they get the IPO action). Avoid ZH.
Exit Strategy: Monetize stock shares at IPO, and hopefully during subsequent stock rise. If the latter occurs (stock rises), position yourself for Friendly Buyout to industry giant. If they ignore you, like Netflix was by Blockbuster (Netflix founders made repeated for BB to buy them), grow the biz and take over Big Stupid Competitor, or put them out of business.
There ya go, "Instant MBA"! [Cue song]... "Ah, that ain't workin', that's the way you do it. Money for nothin' and Czech chicks for free"
Hot chips for cold hard fiat.....good deal for the fund arranger.
So sad that synergies always mean terrible things for people and great things for corporations....
Remember remember, the industrial revolution was powered by child slaves. Only because industrial children grew up to be terrible soldiers, britain passed some child safety laws so they (th eboys esp>) could grow up into good cannon fodder.
Anyways, looks like the high on the hog last days of PE funding and about time too.
Have you heard of King Goshawk?
https://aadivaahan.wordpress.com/2014/12/10/brilliant-futile-frustrating...
everydoby here get a modem a motherboard or a smarphone with broadcom ship inside.
pls, not with me, remove your tong from your own ass, since you are happy like anyone else when you got upgrade about technicals and new stuff for computing, get the courage to face your behavior lil more than your public opinion.
Do you mean a broadside ship in you mother? She bored?
Sorry losechester, I lost you at everyDoby!
Did you mean Ebby buddy?
There are times when I wish captcha and perhaps a breathalyzer (with a high enough limit of course) were pre-requisites again....
can we guess the name of the final corp owning all production, my guess: GMGA, or goldman -morgan -google-apple corp.
You mean Golmorgooapp Inc.?
Sounds like something from Mordor for sure, doesn't it?
Chips get crushed
In this new normal world we live in I think its about time that placing a price on company stock should also become a new normal. P/E should become P/QE as future earnings will probably be derived mainly from negative interest rates. Companies will then be able to do without the cost of labour and infrastructre. Requiring neither cost nor product the company will require only a small BoD and a single desktop computer to handle day to day bribes and such.
It's cool. I'll buy your chip manufacturer for 20 times what they make before you pay your taxes, interest, and depreciate your capital. Wha? You say you have to constantly dumping money into R&D just to not fall behind the curve within 2 years? Sure.
There are plenty of high paying jobs at MacDonald's, Shake Shak etc that these laid off workers can go to. Alternatively they could go to Colorado and grow pot. The US has only 5.4% unemployment, so really there is a shortage of skilled workers. Corporations need to merge and layoff workers to remain competitive, plus it is good for workers to go and find work elsewhere instead of being stuck at the company all of their lives. Nothing like hunger and the threat of eviction to motivate a man. This is what has made Amerika GREAT!
Barack Obama
HNIC
Brilliant, but you didn't write that...
We are all "head" niggers now, idiot.
Smart management would have diversified, and not doubled down.
Their competition also thanks Avago in advance for removing a competing company and increazing the potential candidate pool IF hiring resumes in the sector.
There is no end demand, Neo.
Sounds like payday!! .....not for the 1000s newly unemployed, but the few executives.