Broadcom share price soars, in late stage of Avago takeover negotiations

Avago Technologies Ltd, a manufacturer of chips for wireless-communications and corporate-data-storage markets, is in advanced talks of acquiring Broadcom Corp in a $35-billion deal that would help both companies better compete with larger rivals in the industry.

The Wall Street Journal first reported the talks on Wednesday, sending Broadcom shares surging more than 20% for the day. A deal between the two companies could come as early as Thursday, people familiar with the matter said, creating a chipmaker group with enterprise value of around $70 billion.

This would be the latest in a series of mergers and acquisitions in the industry as companies seek to boost their share in growth markets such as mobile communications, with the internet-of-things boom knocking on the door. A supplier of mobile communication chips for Apple and Samsung, Broadcom would bolster Avagos presence in a market that already accounts for 40% of its business. Avagos market value has risen four times over the past two years due to its strong position in components used in the latest 4G smartphones.

“Its really economically difficult to be a small semiconductor maker now,” said earlier this year Scott McGregor, Broadcoms chief executive. “The larger companies are going to look for consolidation.”

Broadcom has struggled to achieve high rates of growth in recent years, with sales in 2014 jumping by only 1.5% to $8.4 billion. Avago, which was spun off from Hewlett-Packard under the name Agilent in 1999 and was taken private about six years later before being listed again in 2009, reported revenue of $4.3 billion in the year through November 2nd. Neither of the two companies enjoys the individual competitiveness that larger and better-known rivals such as Intel Corp and Qualcomm Inc have, and a merger would help address that.

Avago has already proven as one of the chip industrys main consolidators. It bought LSI Logic in 2013 for $6.6 billion, which helped Avago to diversify its business into storage devices, and earlier this year it acquired Emulex Corp for around $600 million. Still, a deal with Broadcom would be the companys biggest takeover, and the largest semiconductor acquisition ever.

Avago Technologies Ltd settled 7.76% higher on Wednesday on the NASDAQ at $141.49 per share, marking a one-year jump of 99.48% and valuing the company at $36.30 billion. Shares slid 1.05% to $140.00 in after-hours trading.

Broadcom Corp surged 21.45% to $57.16 yesterday, marking a 31.91% year-to-date and a 84.67% year-over-year gain. The company is valued at $34.18 billion. According to CNN Money, the 35 analysts offering 12-month price forecasts for Broadcom Corp have a median target of $52.00, with a high estimate of $60.00 and a low estimate of $43.98. The median estimate represents a 9.02% decrease from the last price of $57.16.