Broadcom purchased by Avago

[Deleted member 13524]

http://www.anandtech.com/show/9296/avago-acquires-broadcom-corperation-for-37-billion

Avago is supposedly worth $10B, and they're purchasing Broadcom, which is worth $37B.

The deal is $17B cash + $20B in shares. But Avago is certainly not worth $20B (though it will be after owning Broadcom).

The way I see it, this is one of two things:

Option A - There's a huge society of investors behind Avago, feeding them with humongous amounts of cash.


Option B -
Avago doesn't have $17B nor $20B in shares, far away from it.
But if they suddenly own Broadcom, they'll also own Broadcom's own cash reserves and their share value will increase by adding Broadcom's current share value (not linear, but still..).
So after owning Broadcom, Avago will pay $17B to Broadcom's shareholders through Broadcom's own cash, and at the same time give them $20B of Broadcom+Avago's worth in shares.

In the end, it's a move for Broadcom's shareholders to take ownership of $17B from the company's cash reserves, while keeping the ownership of the company through Avago+Broadcom's $20B in shares.


On one hand, Broadcom will be left out of cash reserves. On the other, Avago/Broadcom will probably go towards the world's top 5 semiconductor giants.

 

[silent_guy]

Avago has a market cap of $37B. Broadcom has a market cap of $33B.

If you're using company assets, then it's Avago $10B against Broadcom $12B. Not a huge discrepancy.

Broadcom has $2.5B in cash and equivalents, not $17B. They squandered $3B on Netlogic.

 

[Deleted member 13524]

Before the announcement, Avago's market cap was $28B:
http://fortune.com/2015/05/27/avago-broadcom-rumor/

Still lower than Broadcom's.
But I guess the origin for all that cash is still unknown, though.
And since LSI's acquisition, Avago's share value has more than quadrupled:
https://www.google.pt/search?q=avago+market+cap&ie=utf-8&oe=utf-8&gws_rd=cr&ei=Vn5oVdDeOMT4UumlgYgK

 

[silent_guy]

What cash are you talking about?

Before the announcement BRCM was also worth 20% less.

This deal is pretty standard: a bunch of shares will be exchanged. And some cash as well: some of it will come from what little cash Broadcom has in the bank, the majority, $9B, will come from from bank loans that will go on the books of the combined corporation. That part is very similar to a private equity deal.

It's almost as if you're seeing major evil going on somewhere.

 

[nutball]

It's almost as if you're seeing major evil going on somewhere.

It's Totz, what do you expect? From what I've read Avago(*) is backed by some fairly major and well-known private equity funds. This deal sounds pretty standard from their perspective.

(*) Avago - sounds like a travel agent. Not a semiconductor fab operation.

 

[silent_guy]

(*) Avago - sounds like a travel agent. Not a semiconductor fab operation.

Yeah, that's why they'll continue under the Broadcom name. I had never heard of Avago before. Seems like they're the Valeant of the semiconductor industry: buy companies, strip off and sell the non-interesting parts, move on to the next deal.
Doesn't bode well for a bunch of employees.

Sad to see how a super aggressive company like Broadcom has mellowed so much over the years. That's what you get when you replace a shark CEO like Nicholas by an accountant. The personal stories were also much more entertaining. (http://m.theregister.co.uk/2008/06/05/henry_nicholas_indicted/)

 

[PixResearch]

http://www.wsj.com/articles/avago-to-buy-broadcom-for-37-billion-1432811311

Avago is Agilent which is/was the spinout of Hewlett Packard.
Financed by cash in hand ($8B) + some bank financing ($9B).

Fairly standard acquisition really, just bigger numbers than normal...

 

[Deleted member 13524]

It's almost as if you're seeing major evil going on somewhere.

Where did I write or even imply "evil"? Those are your words, not mine.

It's still a case of a much smaller and lesser known company taking over a much larger and popular one.
Why did Avago buy Broadcom and not the other way around? Could Avago have access to cheaper financing than Broadcom?
And how did Avago get their hands on $8B of cash, if their annual profits were $430M last year and they didn't sell any assets lately?
I think it's an interesting case, so out of curiosity I wrote some conjectures about what could have happened. I'm no business expert, so I could very well be wrong.
I did comment the case with a friend of mine who's a consultant with a MBA from London Business School and he thought that hypothesis to be believable, especially for cases of smaller companies taking over bigger ones.

 

[Silent_Buddha]

Where did I write or even imply "evil"? Those are your words, not mine.

It's still a case of a much smaller and lesser known company taking over a much larger and popular one.
Why did Avago buy Broadcom and not the other way around? Could Avago have access to cheaper financing than Broadcom?
And how did Avago get their hands on $8B of cash, if their annual profits were $430M last year and they didn't sell any assets lately?
I think it's an interesting case, so out of curiosity I wrote some conjectures about what could have happened. I'm no business expert, so I could very well be wrong.
I did comment the case with a friend of mine who's a consultant with a MBA from London Business School and he thought that hypothesis to be believable, especially for cases of smaller companies taking over bigger ones.

Most likely Broadcom shareholders lost faith in the direction the company was going and/or its financial future (short and long term) and when another entity put an interesting and enticing offer on the table, they found it too compelling to resist. Rather than go through a search for a new CEO and potential reorganization and restructuring, they opted for the guaranteed cash + speculative shares (taking the chance that the new entity will have a greater chance to increase share prices than the current entity [Broadcom]).

Regards,
SB

 

[Deleted member 13524]

Rather than go through a search for a new CEO and potential reorganization and restructuring, they opted for the guaranteed cash + speculative shares (taking the chance that the new entity will have a greater chance to increase share prices than the current entity [Broadcom]).

That also sounds reasonable.