Semiconductor Avago Technologies has inked a deal to buy competitor Broadcom BRCM for $37 billion in cash and stock, as chipmakers for computers, smartphones, and connected devices ranging from automobiles to industrial equipment and wireless networks consolidate, pooling their technology and specialties. The merger of Avago and Broadcom will combine two leaders in wired and wireless communication semiconductors.

Avago will pay Broadcom shareholders $17 billion in cash and 140 million of its shares, valued at $20 billion as of May 27, resulting in a purchase price of about $37 billion. The cash and stock deal will give current Broadcom investors a 32% stake in the combined company, which is expected to have annual revenues of $15 billion and an enterprise value of $77 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,” Hock Tan, CEO of Avago, said in a Thursday morning press release.

Tan was installed as CEO of Avago during KKR & Co and Silver Lake Partners’ $2.6 billion takeover of the chipmaker in 2006. In the wake of the global financial crisis, Avago was one of the first large initial public offerings to go to market, listing shares on Nasdaq in August 2009. Since that IPO, shares have soared nearly 800% when excluding dividend payments.

On Thursday morning, Tan said the firm’s purchase of Broadcom, the largest-ever deal in the semiconductor industry, will allow Singapore-based Avago to to continue its strong financial performance. “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,” Tan added in the statement.

The deal comes amid a flurry of consolidation in the semiconductor space. In early March, NXP Semiconductors announced a $11.8 billion cash and stock takeover of competitor Freesca Semiconductor, a deal both companies said would push them to the forefront of market for chips inside connected cars and devices.

Larger players in the semiconductor space have also been looking at M&A as a means to increase their scale and presence new chip markets, especially those outside of PC’s, the traditional end-markets for semiconductors. Intel was reportedly an interested bidder for Altera meanwhileQualcomm and NVDIA continue to be the subject of speculation on their strategic plans.

For Broadcom, the sale marks a bit of an exit for billionaire co-founders Henry Samueli and Henry Nicholas after over 15-years trading on the Nasdaq. Samueli’s net worth is calculated by Forbes to be $2.6 billion, while Nicholas’ sits at $2 billion, according to Forbes’ Real Time Billionaire rankings.

“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,” Samueli said in a statement. “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,” added Nicholas.

Once the merger is completed, the combined company will be called Broadcom Limited and will be led by current Avago CEO Tan. Samueli will take a seat on Broadcom Limited’s board of directors and be appointed Chief Technology Officer, while Noicholas will take an advisory role, reporting to Tan.

To finance the cash component of its takeover bid, Avago will use cash on hand and $9 billion in debt from a consortium of banks. The proposed deal is expected to close by the end of the first quarter in 2016, and is subject to regulatory review.

After surging over 20% in late Wednesday trading on reports of the deal, Broadcom was trading lower by 2%. Avago shares were little changed in early trading.

(Credit: Web)