Silver Lake to provide US$2.5b backing to Broadcom takeover bid

ECONOMIES OF SCALE: The combination of Avago and Broadcom will make the company the third-largest US semiconductor maker by revenue, behind Intel Corp and Qualcomm Inc.

NEW  YORK: Silver Lake is set to plow as much as US$2.5bil - its biggest equity check yet - to back Broadcom Ltd’s proposed takeover of Qualcomm Inc, according to people with knowledge of the matter.

The check would be part of US$5bil in convertible debt financing that the private equity firm has pledged to arrange for the giant chipmaker deal, which is valued at US$130bil including net debt. 

The US$5bil package would be Silver Lake’s largest-ever commitment to a transaction, the people said, asking not to be identified because the details are private.

A representative for Menlo Park, California-based Silver Lake declined to comment.

Qualcomm is assessing Broadcom’s cash-and-stock proposal, but it’s preparing to fend off the unsolicited approach, arguing it undervalues the company, people familiar with the plans have said. Broadcom, seeking to build a powerhouse that leads the market for chips that let electronic devices operate wirelessly, is prepared to launch a proxy battle if Qualcomm spurns the US$70-a-share proposal outlined Monday, a separate person with knowledge of the matter said.

The bid will also have to overcome regulatory scrutiny across the globe over the chipmakers’ supply of key components for smartphones.

Agilent, Avago

Silver Lake’s involvement with what’s become Broadcom began in 2005, when it worked with KKR & Co to buy an Agilent Technologies Inc. unit, which made semiconductors for consumer electronics, for US$2.66bil. The business, renamed Avago Technologies Ltd, was sold back to public-market investors through an initial public offering in 2009, a blockbuster deal that netted Silver Lake five times its investment.

Silver Lake tipped in another US$1bil in convertible debt in 2014, when Avago bought LSI Corp. The firm didn’t inject new funds when Avago bought Broadcom in 2016, electing instead to convert the debt to equity. It owns about US$470mil in stock based on Broadcom’s closing price Monday.

The firm provided about $1bil to Dell Inc’s US$67bil acquisition of EMC Corp last year - then the biggest in the technology industry. It also put in about US$1bil to help Michael Dell take Dell private in a US$24.9bil leveraged buyout in 2013.

With about US$39bil under management, Silver Lake is one of the world’s biggest technology-focused private equity firms. It’s led by managing partners Mike Bingle, Jim Davidson, Egon Durban, Ken Hao and Greg Mondre.

The firm gathered US$15bil in about four months earlier this year for its latest fund, the largest tech-focused pool managed by a private equity firm. - Bloomberg