– LSI grabs Agere in $4 billion stock merger

EE Times: Semi News
LSI grabs Agere in $4 billion stock merger

Rick Merritt
EE Times
(12/04/2006 11:52 AM EST)

SAN JOSE, Calif. — In a sign of further consolidation in semiconductors, LSI Logic Corporation and Agere Systems Inc. Monday (Dec. 4) announced that they have entered into a $4 billion agreement to merge the two companies under the LSI Logic name in an all-stock transaction. The combination gives the two players a broader portfolio across electronics, however, the move appears to be more focused on cost savings then creating a new leader in any of their existing markets.

The companies had combined revenue of $3.5 billion for the 12 months ended September 30. The companies have quite different product lines with LSI strong in consumer electronics silicon, while Agere has established itself in cellular and wired networking. Storage is one of the few markets where both companies participate. But even here, LSI is focused on ASICs and adapter cards for RAID and storage interconnects. Agere’s strength is in read channels and ASICs for hard disk drives.

Speaking in a prepared statement, the chief executive of disk drive maker Seagate Technology praised the merger in a sign that the two companies do share limited synergy in storage.

“As valued Seagate partners, both Agere and LSI play an important role in providing products that help us deliver our industry-leading hard drives,” said Bill Watkins of Seagate. “We are excited by the innovative possibilities that this new combination represents,” he added.

By merging, the two companies hope to slash costs by as much as $125 million a year beginning in 2008 from increased efficiencies in manufacturing and operating expenses. Savings will not kick in until 2007, and LSI does not expect to see earnings per share increase until 2008.

No immediate layoffs were announced with the planned merger. The companies have a combined workforce of approximately 9,100 employees, including nearly 4,300 engineers. Together they have more than 10,000 issued and pending U.S. patents.

LSI is clearly taking the lead in the merger. LSI president and chief executive officer Abhi Talwalkar will serve as president and chief executive officer of the new company, which will be headquartered in Milpitas, Calif. Talwalkar, a former division executive from Intel Corp., took the reigns from LSI’s long time chairman Wilf Corrigan recently in an effort to take LSI into its next phase.

LSI non-executive chairman James Keyes will continue as non-executive chairman of the board of directors of the new company, which will be comprised of nine members, with six being designated by LSI and three being designated by Agere.

“By joining forces, we expect the combined scale to enable us to extend our franchises in our market segments, realize significant synergies and better serve the needs of our collective customers, shareholders and employees,” said Talwalkar.

“The complementary products and capabilities of each can enable the combined company to pursue significant new opportunities while delivering more value to customers,” said Richard Clemmer, Agere Systems president and chief executive officer.

Agere shareholders will receive 2.16 shares of LSI for each share of Agere they own based on the closing stock price of $22.81 per share on LSI stock on Dec. 1.

Upon closing, LSI will issue approximately 379 million shares on a diluted basis to complete the transaction. At that time, LSI and Agere shareholders will own approximately 52 percent and 48 percent, respectively, of the combined company.

The transaction is subject to the approval of shareholders from both companies as well as customary closing conditions and regulatory approvals. The companies expect the transaction to close in the first calendar quarter of 2007.

Morgan Stanley acted as financial advisor and Wilson Sonsini Goodrich & Rosati acted as legal counsel to LSI. Goldman, Sachs & Co. acted as financial advisor and Skadden, Arps, Slate, Meagher & Flom acted as legal counsel to Agere.

LSI also announced today that its board of directors has authorized a stock repurchase program of up to $500 million. The repurchases are expected to be funded from available cash and short-term investments.