Avago to buy chip-builder Broadcom in biggest-ever tech deal

SAN FRANCISCO

 Chip maker Avago announced Thursday that it has agreed to buy rival Broadcom for $37 billion in the largest pure technology deal in history,

The deal illustrates the value of the companies producing the underpinning technology that powers smartphones, tablets and other devices used everyday.

The terms, which breaks down to roughly $17 billion in cash and $20 billion in Avago stock, is the largest since the dot-com heyday of the late 1990s when telecommunications giant Lucent Technologies bought device manufacturer Ascend Communications for almost $24 billion in 1999. 

According to data analyst Dealogic, the next largest buyout was Facebook’s acquisition of messaging service WhatsApp last year for about $22 billion.

Dealogic also claims there has been $26 billion in deals within the semiconductor industry already this year, not counting Avago and Broadcom.

The deal values the combined semiconductor company at $77 billion and new company will boast the most diversified communications platform in the industry. Investors estimate it will have an annual revenue of $15 billion.

"The combination of Avago and Broadcom creates a global diversified leader in wired and wireless communication semiconductors,” Hock Tan, CEO of Avago, said in a statement. “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."

After the deal is approved by regulators, the newly combined company will be named Broadcom Limited and Tan will sit at the helm.

Avago, which is based in Silicon Valley and Singapore, was founded in 1961 as the semiconductor division of Hewlett-Packard, but was spun off in 1999. The company posted $4.3 billion in annual sales last November.

By snapping up Broadcom, Avago is poised to take on better-known chip-making rivals like Intel and Qualcomm.