* 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
(Adds advisers, background on deal)
By Sruthi Ramakrishnan
Dec 16 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
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
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.
(Reporting by Sruthi Ramakrishnan and Sampad Patnaik in
Bangalore and Greg Roumeliotis and Nicola Leske in New York;
Editing by Sriraj Kalluvila and Lisa Von Ahn)