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Avago Technologies buys chip maker LSI Corp for $6.6 bn

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Avago Technologies said it is buying LSI Corporation for a reported $6.6 billion or $11.15 per share. The chip maker aims to increase the scope of its interests as well as to further emphasize its focus on enterprise storage technology.

Avago Technologies is a company with headquarters in both Singapore and San Jose, California. The company started out as a semiconductor division under HP before venturing off on its own. On the other hand, LSI Corp, a company also headquartered in San Jose, California, specializes in desiging a number of products such as software and semiconductors for networking and storage. The company also designs a number of technologies used in many data centers around the world.

The buyout is expected to increase Avago's revenues while helping the company tap into new markets. "This combination will increase the company's scale and diversify our revenue and customer base," said Hock Tan, the company's chief operating officer and president. In addition, Avago also expects to reduce its operating costs with the transaction.

In addition to adding new capabilities and technologies to Avago Technologies, the deal will also add a significant amount to the company's adjusted earnings per share. Avago will fund the buyout using a $4.6 billion term loan from a number of banks as well as $1 billion of the company's own funds. In addition, the private equity firm Silver Lake Partners will also contribute $1 billion. Avago reps have stated that the $1 billion investment from Silver Lake Partners will be a 2 percent convertible note over 7 years.

The boards of both Avago Technologies and LSI Corp have already approved the transaction. After the transaction is completed, Avago Technologies expects savings of about $200 million in operating costs as soon as the end of the 2015 fiscal year.

After the announcement of the buyout, LSI shares increased by as much as 38 percent to $10.98 before closing at $10.96 on the NASDAQ on Monday.

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