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What's the deal with the Avago-Broadcom M&A?

Posted: 29 May 2015 ?? ?Print Version ?Bookmark and Share

Keywords:Wall Street? acquisition? synergy? M&A?

One of the fascinating features of capitalism is that money talks.

For example, I can't help but see Avago's eye-popping $37 billion acquisition of Broadcom as an outspoken case of Wall Street winning huge over the engineering community.

The deal was done on behalf of the two companies' shareholders. Nothing wrong with that. It's textbook (well, Milton Friedman's textbook) capitalism.

But here's the rub. I can't see any imperative reason that Broadcom had to be gobbled up by a smaller company. Avago had about $4.3 billion in revenues in the last fiscal year, while Broadcom made almost double that amount. Picture a salmon swallowing a shark.

It isn't like Broadcom was in dire straits, fighting for survival. Far from it.

Avago Broadcom

Of course, "little overlap" in products and "synergy" in business are two key words every company often uses to justify a proposed M&A.

Avago's Broadcom acquisition obviously fits the clich.

As my colleague Rick Merritt pointed out in his story, "Avago is strong in analogue products related to optical and wireless communications. Broadcom is more focused on digital SoCs for smart home and data centre markets."

Combining the two businesses will make the merged entity big. That's for sure.

But I need to be enlightened on how this advances the companies' technologies. How will this deal make it better for engineers at the two companies working on new products and technologies? Am I cynical in suspecting that Avago wanted Broadcom purely for the sake of getting bigger?

Where is the affinityor any apparent good vibeconnecting Avago to Broadcom? Aren't the "soft" factors of corporate culture at least as important for successful mergers as a momentary splash on the stock market?

If you remember, Avago was in pursuit of Freescale until late February this year. But a rise in Freescale's share price made the acquisition too expensive.


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