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.
Terms of the transaction
Broadcom (BRCM) shareholders will have the option to elect one of the following:
- $54.50 in cash or
- .4378 shares of Avago Technologies (AVGO) or
- no election, which gives you $27.25 in cash and .2189 shares of Avago or
- .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.
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
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.
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.
Avago is financing the cash portion of the consideration with cash on hand and has committed financing for the balance.