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Avago to buy LSI for S$8.3b to focus on storage

NEW YORK — Singapore-based Avago Technologies is buying LSI Corp for US$6.6 billion (S$8.3 billion) in one of the semiconductor sector’s largest deals this year, as it turns to the fast-growing storage-chip market to fight volatility in its main wireless business.

NEW YORK — Singapore-based Avago Technologies is buying LSI Corp for US$6.6 billion (S$8.3 billion) in one of the semiconductor sector’s largest deals this year, as it turns to the fast-growing storage-chip market to fight volatility in its main wireless business.

Rapid growth in cloud storage is boosting sales of higher-margin products for storage-drive makers like Seagate Technology, the biggest customer of California-based LSI last year. Avago’s acquisition of LSI, announced late on Monday, will be the second-largest deal in the industry this year, after California-based Applied Materials said in September that it would buy rival Tokyo Electron in an all-stock deal valued at more than US$7 billion.

LSI shareholders will receive US$11.15 for each share, a 40 per cent premium to Friday’s closing price of US$7.94, in the all-cash deal.

Avago, which makes analogue semi-conductors and whose customers include Apple and Samsung, will get 38 per cent of its revenue from enterprise storage after the deal. The wireless business’ share of Avago’s revenues will fall by half to 25 per cent. This will help reduce exposure to the volatility of that sector, which is expected to increase, said CEO Hock Tan.

The combined company will have about US$5 billion in annual turnover, a long-term revenue growth rate of 6 to 8 per cent and earnings per share growth in the double digits, he added.

The firm also forecast savings of US$200 million in the 12 months ending Nov 1, 2015 — the first full fiscal year after the transaction closes.

Silver Lake Partners will help fund the acquisition with a US$1 billion investment in the form of a seven-year convertible note. The private equity firm, along with investment firm KKR, carved out Avago from Agilent Technologies in a US$2.7 billion deal in 2005. Agilent itself had separated from Hewlett-Packard in 1999.

Avago, which was taken public in 2009, said the remaining funding for the deal would come from a US$4.6 billionterm loan from banks and US$1 billion of cash in hand. AGENCIES

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