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Basics of the May Broadcom-Avago Merger Agreement

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Basics of the transaction

The Broadcom-Avago merger is a cash and stock transaction. That means Broadcom shareholders will participate in the upside by holding stock in the merged entity. The equity value of the transaction is roughly $33.8 billion.

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Terms of the transaction

Broadcom (BRCM) shareholders will have the option to elect one of the following:

  1. $54.50 in cash or
  2. .4378 shares of Avago Technologies (AVGO) or
  3. no election, which gives you $27.25 in cash and .2189 shares of Avago or
  4. .4378 shares of restricted stock, which will be tax advantaged and not transferable, or traded on an exchange, for one to two years

Cash and stock are limited to 50% of the transaction consideration. Both companies may pay their respective dividends during the pendency of the transaction.

Conditions precedent

The following conditions need to be satisfied in order for the deal to close:

  • Broadcom shareholder vote
  • Avago shareholder vote
  • U.S. Securities and Exchange Commission approval of proxy statement
  • Hart-Scott-Rodino Antitrust Improvements Act filing
  • Committee on Foreign Investment in the United States approval
  • Singapore Court approval
  • China antitrust approval
  • any other foreign approvals, if required
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Nonsolicitation

Broadcom has a nonsolicitation agreement with a fiduciary out. This means that prior to shareholder approval of the transaction, Broadcom can discuss a merger with another suitor, if approached.

First, the Broadcom board of directors would have to determine that another merger discussion could lead to a bona fide offer that would likely result in a higher bid for the company. Broadcom is not permitted to shop itself around, however. There’s a nonsolicitation agreement on the Avago side as well.

Breakup fee

If a bidder happens to come in and top the Avago bid, Broadcom will owe Avago a breakup fee of $1 billion. If Avago gets a suitor that doesn’t want Broadcom, then Avago will owe Broadcom $1 billlion.

Financing

Avago is financing the cash portion of the consideration with cash on hand and has committed financing for the balance.

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