Dec. 16--What goes around comes around.
Avago Technologies Ltd, whose chips are used in Apple products, announced Monday it would buy LSI Corp. of San Jose, Calif., for $6.6 billion to enter the fast-growing storage chip market.
In 2006, it was LSI that was doing the buying -- taking over Agere Systems of Hanover Township, Lehigh County. LSI has retained a major presence at the old Agere campus next to Route 22 ever since.
Agere traced its roots to AT&T's research division, the renowned Bell Labs. Some of Bell's innovations were developed in the Lehigh Valley, and its factory on Union Boulevard in Allentown was the site of the first production line for transistors.
Today, LSI's chips are used primarily in storage devices such as hard disks and flash drives.
"This transaction provides immediate value to our stockholders, and offers new growth opportunities for our employees to develop a wider range of leading-edge solutions for customers," LSI CEO Abhi Talwalkar said in a joint news release with Avago. "Our leadership positions in enterprise storage and networking, in combination with Avago, create greater scale to further drive innovations into the datacenter."
Before the bell on Monday, Avago's shares rose nearly 16 percent to $52.97.
The $11.15 per share cash offer is a 41 percent premium to LSI's Friday closing price. LSI shares were trading at $10.98.
Avago will fund the deal with a $1 billion investment from private equity group Silver Lake Partners, a $4.6 billion term loan from a group of banks and $1.0 billion of cash in hand, the companies said in a statement on Monday. The Silver Lake Partners investment will be in the form of a seven-year convertible note.
Avago, which designs, develops and supplies analog semiconductors, said the deal would immediately add to free cash flow and earnings per share on an adjusted basis, and would help save $200 million in annual costs by the end of the fiscal year ending Nov. 1, 2015, the first full fiscal year after the deal closes.
"This highly complementary and compelling acquisition positions Avago as a leader in the enterprise storage market and expands our offerings and capabilities in wired infrastructure, particularly system-level expertise," Avago CEO Hock Tan said in the news release. "This combination will increase the company's scale and diversify our revenue and customer base.
"In addition to these powerful strategic benefits, as we integrate LSI onto the Avago platform, we expect to drive LSI's operating margins toward Avago's current levels, creating significant additional value for stockholders," he said.
The transaction, already approved by the boards of directors of both companies, is subject to regulatory approvals in various jurisdictions, as well as to the approval of LSI stockholders.
During the tech boom of the late 1990s, Agere -- then the microelectronics division of Lucent Technologies -- shone. The business ranked as the world's No. 1 maker of microchips for cell phones and other communications devices, and No. 2 in optoelectronic devices. Optoelectronics is high-speed data and voice communication that travels as beams of light over glass strands, called fiber-optics.
The company's success led local leaders to speculate about a cluster of semiconductor companies in the Valley, drawn by and complementing Agere. The company ran three shifts, seven days a week, while job centers scoured a tight labor pool to find people to fill available positions. The company employed 10,250 people, between the Lehigh Valley and Reading area, when Lucent spun it off as an independent business in 2001.
Summing up those euphoric times, Agere CEO John Dickson rented a billboard on Route 22 near Bethlehem reading: "Move over, Silicon Valley. Here comes Lehigh Valley."
The company's initial public offering ranked as the fifth-largest IPO in U.S. history. It netted $3.6 billion, with stock selling at a lower-than-expected $6 per share. But fast-growing tech markets began to shrivel in 2001 as the U.S. economy slid into recession, with optoelectronics and fiber-optics suffering especially hard hits. Agere lost almost $4.5 billion over just two quarters in 2001.
As the tech boom caved in, Agere trimmed thousands of jobs through a wrenching series of layoffs. By August 2002, the company announced plans to get out of optoelectronics and phase out local manufacturing operations, becoming a shell of its former self.
LSI acquired Agere in 2006 in an all-stock deal worth $4 billion.
Reuters contributed to this report.
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