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Semiconductor Value Chain

Avago to Acquire LSI Via Debt-backed Deal

20 December 2013

Avago Technologies Ltd., a Singapore-based public company, is going to pay about $6.6 billion in cash to buy LSI Corp. (San Jose, Calif.), a fabless chip and software company in networking and information storage. The deal is backed by private equity firm Silver Lake Partners, which was part of the team which bought Avago out from Agilent Technologies in 2005.

Avago said it would pay $11.15 in cash for each share of LSI. Avago described the deal as complementary, saying it would combine Avago's expertise in wired and wireless communications, in fiber optics and Serdes components with LSI's strengths in networking and storage, in software and system-chip development.

Hock Tan, CEO of Agilent, said in a conference call held to discuss the announcement that the move would create a diversified semiconductor company while reducing Avago's exposure to the volatility of the wireless sector.

Both companies have annual revenues of about $2.5 billion. Avago made a net profit of $552 million on sales of $2.5 billion in its fiscal year ended Nov. 3, while LSI made a net profit of $202 million in its 2012 fiscal year.

Avago was formerly the semiconductor products division of Hewlett Packard Co., and later of Agilent Technologies Inc., prior to being spun out as an independent entity in 2005 and taken public by an IPO in 2008.

To fund the transaction, Avago has agreed to take a $4.6 billion loan from a group of banks and will take $1 billion from the combined balance sheet of the two companies. The last tranche will come in the form of a $1 billion investment in Avago from private equity firm Silver Lake Partners.

The deal has been approved by the board of directors of both companies and is subject to regulatory approvals in various jurisdictions and customary closing conditions, as well as the approval of LSI's stockholders.

In a statement, Hock Tan, president and CEO of Avago, said the deal positions Avago as a leader in the enterprise storage market and expands its offerings and capabilities in wired infrastructure, particularly system-level expertise.

"This combination will increase the company's scale and diversify our revenue and customer base," Tan said.

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