Avago in advanced talks to acquire rival Broadcom

Avago Technologies Ltd is said to be in advanced talks to acquire rival Broadcom Corp in a deal that could be valued at $35 billion or more.

The deal represents further consolidation of the chip industry.

Over the past two years Avago, the acquisitive former semiconductor unit of Hewlett-Packard Co., has been at the forefront of aggressive acquisitions in the sector, as part of an effort to break into new markets and expand its business.

Just this month the firm acquired the networking products maker Emulex Corp for approximately $606 million.

Avago Broadcom deal

Broadcom, which makes communications chips for tablets and smartphones, posted earnings of $1.41 billion in 2014. However, the company struggled to boost sales, with revenue only up 1.5% to $8.4 billion.

Earlier this year Scott McGregor, CEO of Broadcom, commented on the difficulties of being a small semiconductor maker, pointing out that “the larger companies are going to look for consolidation”.

However, Avago is roughly half Broadcom’s size, according to annual revenue. It does have a higher market value, of $34 billion compared to $28 billion respectively, but talks of a deal has still somewhat caught investors off guard.

Neither of the two companies have significant dominance in the market, with the dominant players being Intel Corp. and Qualcomm Inc.

As the WSJ pointed out, this deal could help address that.

According to researcher Dealogic, an acquisition of Broadcom valued at $35 billion would be one of the largest semiconductor takeovers in history.

Shares of Broadcom and Avago both increased on news of the deal, with Broadcom up 21%, closing at $57.15, and Avago up almost 8%, closing at $141.49.

Video – What is takeover?

This Market Business News video explains what acquisitions (takeovers) are, and why they are not the same as company mergers.