Avago Technologies Ltd (AVGO.O) agreed to buy fellow chipmaker Broadcom Corp (BRCM.O) in a cash-and-stock deal valued at $37 billion to boost its mobile chip and data networking businesses.
Avago, a maker of chips for the wireless and industrial markets, is offering Broadcom shareholders $17 billion in cash and Avago shares valued at $20 billion in one of the biggest deals ever in the chip industry.
The deal represents a premium of about 28 percent, according to Reuters calculations based on Broadcom’s market value of $28.85 billion as of Tuesday’s close, the day before the Wall Street Journal reported that the companies were in talks.
Broadcom’s shares rose as much as 23 percent on Wednesday, while Avago rose as much as 10 percent.
Broadcom shares were down 0.7 percent at $56.75 in premarket trading on Thursday, while Avago was up 3.8 percent at $146.64.
Broadcom, based in Irvine, California, makes semiconductors for a variety of products, including set-top boxes, cellphones and network equipment.
The company is best known for its connectivity chips, which integrate Wi-Fi and Bluetooth technology and are used widely in top-tier smartphones made by Apple Inc (AAPL.O) and Samsung Electronics Co Ltd (005930.KS).
Demand for cheaper chips and new products to power Internet-connected gadgets is driving consolidation in the industry.
Until Thursday, Avago’s biggest deal was for chipmaker LSI Corp, which it agreed to buy for $6.6 billion in May last year.
The company struck a deal to buy networking company Emulex Corp ELX.N for $606 million in February.
Avago had also bid for Freescale Semiconductor Ltd (FSL.N) earlier this year, people familiar with the matter told Reuters in March. NXP Semiconductors NV (NXPI.O) bought the company for $11.8 billion.
A deal with Broadcom would be a strategic fit for Avago and enable it to provide end-to-end components into the networking and infrastructure markets, Nomura analyst Romit Shah wrote in a research note on Wednesday.
The companies said they expected to close the deal by the end of first quarter of 2016 and save $750 million in costs within 18 months.
The combined company, to be based in Singapore, would have annual revenue of $15 billion and an enterprise value of $77 billion, the companies said in a statement.
Broadcom shareholders will own about 32 percent of the combined company. They would also have the option to choose between various combinations of cash and stock.
Avago, which is incorporated in Singapore and has dual headquarters there and in San Jose, California, said it intended to fund the cash portion of the deal by using funds from the combined companies and a new debt of $9 billion.