In one of the largest technology acquisitions of 2011, Broadcom has scooped up NetLogic Microsystems for $3.7 billion. The price equals $50 per share.
NetLogic makes intelligent semiconductor solutions for next-generation networks, which Broadcom covets as a means to extend its infrastructure portfolio with new product lines and technologies.
Broadcom specifically pointed to NetLogic's knowledge-based processors, multicore embedded processors, and digital front-end processors as attractive aspects of the deal.
"This transaction delivers on all fronts for Broadcom's shareholders -- strategic fit, leading-edge technology and significant financial upside," said Scott McGregor, Broadcom's president and CEO. "Broadcom is now better positioned to meet growing demand for integrated, end-to-end communications and processing platforms for network infrastructure."
Mobile Devices Open the Door
A key opportunity for the merged company lies in the tablet and smartphone market. These devices are equipped to use conventional service-provider networks, and questions are arising about the impact the proliferation of these devices will have on cell networks.
"We saw this issue to a limited degree in the problems that AT&T had when the iPhone first became available. You saw certain AT&T networks, particularly in New York and San Francisco, getting swamped with the demand," said Charles King, principal analyst at Pund-IT.
"Clearly, vendors want to avoid that kind of problem in the future. That's going to open up some new opportunities for innovative, next-generation technologies, and the key to those types of technologies is microprocessors that NetLogic and other vendors have been developing."
As King sees it, Broadcom's purchase of NetLogic demonstrates that the company sees the challenges inherent in the next generation of wireless devices and believes this $3.7 billion investment will create substantial market opportunities.
Broadcom's Growth Strategy
McGregor said the transaction is consistent with Broadcom's strategic portfolio-review process and with its focus on value creation through disciplined capital allocation, while delivering strong solutions for clients.
The boards of both companies approved the deal, and the transaction is expected to close in the first half of 2012. Broadcom expects its investment to pay quick dividends. The company predicted earnings per share to rise about 10 cents in 2012.
Ron Jankov, NetLogic Microsystems President and CEO, called the merger a strong win for customers, for shareholders and for NetLogic Microsystems employees. NetLogic's product portfolio will benefit by blending with Broadcom's technologies, tools, resources and ecosystem, he said, and the companies expect the integration to run smoothly from a personnel standpoint.
"Our employees will benefit from the strong cultural alignment with Broadcom," Jankov said, "and from joining forces with an equally aggressive and energetic organization with the same relentless focus on engineering excellence and innovation."
Posted: 2011-09-20 @ 9:39am PT