The deal is the largest merger of chipmakers ever and turned a minor company run by a ferocious dealmaker into one of the biggest industry players. It should also put the fear of God into its large rival Qualcomm.
Avago works the wireless and industrial markets and it is offering Broadcom shareholders $17 billion in cash and Avago shares valued at $20 billion. Broadcom makes connectivity chips, which are used widely in smartphones made by Apple and Samsung.
The deal is the biggest so far by Avago Chief Executive Hock Tan, who has developed a small chipmaker into a $36 billion company through acquisitions since taking the over nine years ago.
The combined company is going to be based in Singapore and known as Broadcom and will be the third-largest U.S. semiconductor maker by revenue, behind Intel and Qualcomm.
It is not a bad price either more than 28 percent over Broadcom’s market value of $28.85 billion and it is fairly likely that the new company is going places. People want the cheaper chips and new products to power Internet-connected gadgets that the two companies make.
Avago and Broadcom first spoke about a potential merger in October 2014 but could not agree on a price, said people familiar with the matter who are unauthorized to speak publicly about it.
Talks heated up in April when Avago approached Broadcom again with higher offers, and negotiations continued until the two agreed on a deal.
Broadcom is the weaker partner and has been struggling to grow as competition in the mobile chip business intensifies. The company’s revenue increased by just 1.5 percent last year.
The new Broadcom would have annual revenue of $15 billion and an enterprise value of $77 billion, the companies said in a statement.