Avago to buy Broadcom in $37 billion deal

Avago Technologies said on Thursday that it will fund the cash consideration of its acquisition of Broadcom with cash on hand from the combined companies and US$9 billion in new, fully-committed debt financing from a consortium of banks.

Avago Technologies, which is incorporated in Singapore, said it would buy Broadcom, based in Irvine, California, in a cash-and-stock deal valued at US$37 billion.

Avago, a maker of chips for the wireless and industrial markets, is offering Broadcom shareholders US$17bn in cash and Avago shares valued at US$20 billion.

Avago said the combined company will have US$14.2 billion of net debt, and leverage of around 2.5x EBITDA. It will have US$15.5 billion of new term loans at closing, including US$6.5 billion to refinance existing debt facilities and US$9 billion of new debt.

Broadcom has four bonds outstanding, according to Trace, which had barely moved in early trading.

"Those bonds are very illiquid," said a New York based broker.

Broadcom's 2.7 percent 2018 and 4.5 percent 2034 bonds have been trading at a mid-market price of around 103.40 and 103.75, respectively, or 1.65 percent and 4.20 percent on a yield basis, according to Trace.

The acquisition is expected to close by the end of the first calendar quarter of 2016, and is subject to regulatory approvals in various jurisdictions, as well as the approval of Avago's and Broadcom's shareholders.

Avago is rated BB+ by both S&P and Fitch. Broadcom is rated A2 by Moody's and A- by S&P.