By Don Clark
An accelerating wave of consolidation in the semiconductor
industry has a new point man: Hock Tan, a press-shy numbers guy now
mounting the largest takeover in high-tech history.
The 63-year-old chief executive of Avago Technologies Ltd.
stepped into the limelight on Thursday with a $37 billion
cash-and-stock deal to buy Broadcom Corp. The transaction would
meld two companies with complementary sales of communications
chips, including processors that handle different chores in
smartphones from Apple Inc. and Samsung Electronics Co.
It also would continue the CEO's practice of using debt to
finance takeovers of bigger name firms with larger workforces,
shedding nonessential operations and staff and taking other steps
to boost profit margins.
His company, the result of a buyout of Agilent Technologies Inc.
operations that started as part of Hewlett-Packard Co., makes chips
for scores of products including smartphones, computer disk drives,
consumer appliances, data networks, telecommunications, and
industrial gear. It went public in 2009 at $15 a share. The stock
closed Thursday at $142.38.
Broadcom, whose revenues last year were nearly twice the size of
Avago's, would take Mr. Tan's company into markets including cable
modems, TV set-top boxes, Wi-Fi and data center switching systems.
The combined company would be called Broadcom Ltd.
"This is a landmark day in the history of the industry," said
Scott McGregor, age 58, Broadcom's chief executive, during a
conference call on Thursday.
Some investors bet it won't be the last word on Broadcom's
future. The company's shares closed on Thursday at $56.25, above
Avago's $54.50 per share offer price, a sign investors feel a
higher offer may emerge.
Qualcomm Inc. and Intel Corp. also discussed buyout
possibilities with Broadcom, though Avago's interest appeared more
serious, a person familiar with the situation said. Intel and
Qualcomm representatives declined to comment.
Asked on the conference call about the possibility of other
bids, Mr. Tan said it would be hard to match Avago's offer, but he
wouldn't dismiss the possibility entirely. "We feel a little
paranoid," he said.
Mr. Tan, who declined to comment through a spokesman, rarely
submits to interviews. One former colleague said Mr. Tan's short
stature and walk reminded him of a bulldog, as does his
personality. He is known for driving employees hard and spending as
little as possible on chores like marketing.
People who have worked with him say he spends little time on
anything but work, preferring to let results speak for themselves.
Those include his $6.6 billion deal in 2013 for LSI Corp., which
roughly doubled Avago's size, despite the fact that Mr. Tan sold
off LSI operations that some industry executives had deemed
promising.
One of Mr. Tan's hallmarks is to rein in spending on speculative
projects, colleagues say, focusing on chips with established
customers and favorable profit margins. Avago, they note, sells
many parts whose technology originated in developments decades ago
at H-P and AT&T.
"He has a unique ability to run a big business as if it were a
small business," said Kenneth Hao, an Avago director and managing
partner at Silver Lake, the chip maker's second-largest
investor.
Not that Mr. Tan doesn't spend on research. He beefed up
development of components that help filter cellular signals to
improve connections, a person familiar with the decision said. That
bet proved prescient when smartphones began using multiple wireless
networks and required multiple filters.
Mr. Tan, a native of Penang, Malaysia, received a master's
degree in mechanical engineering from the Massachusetts Institute
of Technology and a master's degree in business administration from
Harvard University. He held financial positions at General Motors
Co. and PepsiCo Inc. before taking his first technology-related job
at Commodore International Ltd., an early PC maker based in
Pennsylvania, where he served as vice president of finance.
His first big success came as chief operating officer of
Integrated Circuit Systems Inc., which Mr. Tan helped take private
and then public again. That company was sold in 2005 to Integrated
Device Technology Inc. for $1.7 billion.
Though Integrated Circuit Systems was a relatively small
company, Mr. Tan's record was enough to attract private-equity
firms Silver Lake and KKR & Co., which led the $2.66 billion
buyout in 2005 that created Avago. They recruited him to join the
company the next year.
Mr. Tan now works mainly from the San Jose, Calif., offices of
Avago, though the company is incorporated in Singapore. He also
maintains a residence in Pennsylvania, the location of some former
LSI operations.
Although he holds Avago shares worth more than $250 million at
current prices, Mr. Tan has shied away from trappings like a fancy
office or public appearances, people who have worked with said. He
does have a fondness for expensive cars, however, recently
purchasing a Tesla Motors Inc. electric car, one of those people
said.
His latest deal would have Avago pay Broadcom shareholders $17
billion in cash and about $20 billion of its shares. Broadcom
investors could choose to receive $54.50 a share in cash or about
0.44 shares in a newly formed Singapore holding company, among
other options. They would own about 32% of the combined
company.
Avago said it planned to fund the cash portion of the deal with
money on hand and $9 billion in new debt financing from a
consortium of banks.
Broadcom co-founder Henry Samueli, its 60-year-old chairman and
chief technical officer, would serve as chief technology officer of
the combined company and join its board. The transaction is
expected to close by early next year.
Shares of Broadcom declined 1.6% on Thursday, after surging 21%
on Wednesday when The Wall Street Journal reported the companies
were in advanced merger talks. Avago shares were up less than a
percentage point in 4 p.m. Nasdaq trading.
Dana Mattioli and Dana Cimilluca contributed to this
article.
Write to Don Clark at don.clark@wsj.com
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