Exclusive: Avago vied for Freescale, still seeking large deal - sources

Reuters News
Posted: Mar 04, 2015 2:10 PM

By Liana B. Baker and Greg Roumeliotis

(Reuters) - Avago Technologies Ltd held advanced talks last month to acquire Freescale Semiconductor Ltd, and is still looking for an acquisition that could be transformative, according to four people familiar with the situation.

Freescale agreed on Sunday to be acquired by NXP Semiconductors NV for $16.7 billion, including debt. Avago's previously unreported negotiations to acquire Freescale indicate that major deals in the sector are set to continue as chipmakers respond to their customers seeking to consolidate suppliers.

Avago, which has a market capitalization of $32 billion, had lined up banks to finance an offer for Avago, the people said. The company, which is based in Singapore and San Jose, California, ended negotiations after Freescale shares surged above $36 on Feb. 13 after the New York Post reported that Freescale was exploring a sale, according to the people.

The rise in the share price made Freescale too expensive for Avago, which had identified fewer synergies than NXP did and was betting on cutting costs and divesting some of Freescale's less profitable assets to make the deal work, the people added.

Avago and Freescale could not be reached for comment.

The deal would have been the biggest so far for Avago, which was created by private equity firms KKR & Co LP and Silver Lake following their acquisition of Hewlett-Packard Co's semiconductor unit Agilent in 2005.

Avago, under the leadership of Chief Executive Hock Tan, is now looking for other acquisitions to expand its offerings, the people said.

Last week, Avago agreed to buy networking company Emulex Corp for $606 million. Avago's biggest deal to date was in May 2014, when it bought LSI Corp for $6.6 billion in cash, with backing from Silver Lake, in a bid to expand into the fast-growing storage chip market.

Avago could now look at expanding in different areas, from analog semiconductors to radio frequency technology, the people said, adding that it could roll up several smaller analog companies or pursue a larger acquisition.

Avago's main business is its wireless segment, which last quarter accounted for about 40 percent of revenue and sells radio frequency chips for products like Apple's Inc's iPhone. The rest of its businesses are split between enterprise storage, wired infrastructure and fiber optics, as well as industrials, all areas it may seek to bulk up.

Avago's shares have doubled over the past 12 months, as has its revenue, primarily due to the LSI deal.

Worldwide semiconductor M&A reached $31 billion last year, the most since 2011, according to Thomson Reuters data.

(Reporting by Liana B. Baker and Greg Roumeliotis in New York; Additional reporting by Nadia Damouni in New York; Editing by Leslie Adler)