March 3, 2021

DealBook: Broadcom to Buy NetLogic for $3.7 Billion

Scott McGregor, chief of Broadcom.Ronda Churchill/Bloomberg NewsScott McGregor, chief of Broadcom.

8:26 a.m. | Updated

Broadcom agreed on Monday to buy NetLogic Microsystems, a maker of chips for wireless devices like routers, for about $3.7 billion in cash.

Under the terms of the deal, Broadcom will pay $50 a share, net of cash. The price represents a 57 percent premium to NetLogic’s closing on Friday.

Through the deal, Broadcom will acquire a maker of advanced chips, especially those used in equipment for high-speed cellphone data networks. NetLogic’s clients include Brocade Communications Systems, Cisco Systems and I.B.M.

Broadcom had been looking at a way to move into more advanced chipsets for some time, the company’s chief executive, Scott A. McGregor, told DealBook in a telephone interview. The network processing sector was a particularly attractive new area for growth.

“This greatly expands our market opportunities in the networking space,” he said. “We’ll be the only company that provides complete end-to-end solutions in networking.”

Mr. McGregor added that by buying NetLogic, his company would add a valuable portfolio of patents to its own holdings. Intellectual property has been a key driver in technology mergers over the past year, including Google’s takeover of Motorola Mobility.

On a conference call with analysts, Broadcom executives defended the high deal premium as a rational price for a high-margin business with a coveted line of products.

“It’s certainly a full price for the transaction, but we believe that we’re getting a fast-growing asset,” Eric Brandt, Broadcom’s chief financial officer, said on the call.

The deal also includes a break-up fee of 3.25 percent, a fairly standard level for a major transaction.

Broadcom expects the deal to add to its earnings per share by 10 cents next year on a pro forma basis. The takeover is scheduled to close in the first half of next year.

Frank P. Quattrone’s investment bank, Qatalyst Partners, and the law firm of Bingham McCutchen advised NetLogic.

Broadcom was advised by the law firm of Skadden, Arps, Slate, Meagher Flom.

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