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Avago Announces Acquisition of Broadcom Today, a $37-Billion Deal

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Avago and Broadcom stock surges in yesterday’s trading

In a May 28 press release, Avago Technologies (AVGO) announced it will acquire Broadcom Corporation (BRCM) for $37 billion. The Wall Street Journal reported yesterday, May 27, that Avago was in “advanced talks” to acquire Broadcom. That news had a huge impact on both Avago and Broadcom stock in yesterday’s trading.

Avago stock increased 8%, and Broadcom stock shot up 22% in yesterday’s trading, as you can see the above chart. Avago had a market cap of $34 billion, while Broadcom had a market cap of $28 billion before news of the acquisition broke.

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The acquisition will help Avago broaden the markets it can serve

Avago’s acquisition of Broadcom represents another consolidation in the semiconductor industry. In March, Freescale Semiconductor (FSL) acquired NXP Semiconductors (NXPI) for a valuation of $11.8 billion. By acquiring Broadcom, Avago will gain a broad portfolio of chips that Broadcom develops. Broadcom’s portfolio of chips includes Wi-Fi chips for mobile devices, modems for telecom and cable companies, and chips for networking devices.

Avago already develops chips for enterprise storage and wireless communications products. So acquiring Broadcom will allow Avago to broaden the range of markets it can serve.

If you want a diversified exposure to Avago, you can invest in the VanEck Vectors Semiconductor ETF (SMH). SMH invests 4.2% of its holdings in Avago.

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