Avago Technologies is buying LSI Corporation for $6.6 billion in a deal that will move the chipmaker into more parts of the wireless ecosystem, and expand its markets outside wireless as well. Avago makes RF amplifiers, LEDs, LED displays, motion control encoder products, and optical sensors. LSI makes chips and software for mobile networks and data centers, as well as hard disk drives, flash storage products and server storage products.
LSI shareholders woke up to good news this morning as shares quickly approached Avago’s $11.15/share offer, which is 40% above LSI’s Friday close. Avago shares rose as well, up more than 8% in early morning trading.
Avago was once part of HP. Its history dates back to 1961, when it was called HP Associates and supplied silicon for that company’s test systems. In 1999, HP spun off Agilent Technologies as a separate test and measurement specialist, and Agilent formed a joint venture with Phillips to make Lumiled LEDs. Then in 2005 Agilent sold its part of the joint venture to Phillips, and sold its non-Lumileds LED business to private equity firms KKR and Silver Lake for $2.6 billion. KKR and Silver Lake named the company Avago and said at the time that it was the largest private chip company in the world. It did not stay private for long; Avago went public in 2009, and Silver Lake subsequently cashed out with a reported return of 400%.
Now Silver Lake is back in business with Avago, helping to finance the LSI acquisition. The firm is loaning Avago $1 billion through a convertible note. Avago is raising $4 billion from banks and funding the remaining $1 billion from its own balance sheet.
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