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* Avago offers $11.15 per share, a premium of 41 percent
* Avago shares rise 11 percent; LSI soars 39 percent
* Enterprise storage to become biggest revenue contributor
By Sruthi Ramakrishnan
Dec 16 (Reuters) - Avago Technologies Ltd on Monday said it would buy LSI Corp for $6.6 billion in one of the semiconductor industry's largest deals this year as it turns to the fast-growing storage chip market to counter volatility in its main wireless business.
Rapid growth in cloud storage is boosting sales of higher-margin products for storage drive makers such as Seagate Technology Plc, LSI's biggest customer last year.
Avago's shares rose as much as 11 percent to an all-time high of $50.55 on Nasdaq, while LSI jumped 39 percent to $10.99, below the $11.15-per-share cash offer. Seagate and technology peer Western Digital Corp both gained about 3 percent.
The Avago acquisition is the second-largest deal in the industry this year after Applied Materials Inc said in September it would buy rival Tokyo Electron Ltd in an all-stock transaction valued at more than $7 billion.
Avago, which designs and develops analog semiconductors and was once part of Hewlett-Packard Co, will get 38 percent of its revenue from enterprise storage after the deal.
"Storage is a very good place to be," RBC Capital Markets analyst Doug Freedman said.
The wireless business' share of Avago's revenues will fall by half to 25 percent. This will help reduce exposure to that sector's volatility, which is only expected to increase, Chief Executive Officer Hock Tan said on a conference call with analysts.
Avago's customers include Apple Inc, Samsung Electronics Co Ltd, LG Electronics Inc and Huawei Technologies Co Ltd.
The combined company will have about $5 billion in annual revenue.
Silver Lake Partners will help fund the acquisition with a $1 billion investment in the form of a seven-year convertible note. The private equity firm, along with KKR & Co LP, carved out Avago from Agilent Technologies Inc in a $2.66 billion deal in 2005. Agilent itself had separated from Hewlett-Packard in 1999.
The private equity consortium took Avago public in 2009 and sold its last shares in the company in 2012, reaping roughly five times its initial $1 billion equity investment, according to U.S. regulatory filings.
Avago said the remaining funding for the acquisition would come from a $4.6 billion term loan from a group of banks and $1 billion of cash in hand..
The company said the deal would immediately add to free cash flow and earnings per share, excluding one-off costs. It forecast savings of $200 million in the 12 months ending Nov. 1, 2015, the first full fiscal year after the transaction closes.
The combined entity will have a long-term revenue growth rate of 6 percent to 8 percent, with earnings per share growing in the double digits, Hock said on the call.
Deutsche Bank was sole advisor to Avago, while Qatalyst Partners advised LSI.