Shareholders of LSI Corporation (LSI) recently accepted the acquisition bid by Avago Technologies (AVGO) for $6.6 billion in cash. Post-merger, LSI shareholders will receive a cash payment of $11.15 for each LSI share. The transaction is expected to be completed within the first half of 2014, subject to regulatory approvals and fulfillment of customary closing conditions.
The strategic move was aimed to diversify Avago's existing business line from wired infrastructure, wireless and industrial businesses to the storage chip market to boost revenues in the face of industry consolidation and challenging macroeconomic conditions.
It is worth noting that with the announcement of the deal, LSI shares jumped 38.6% to close at $10.96 on Dec 16. This substantial jump has resulted in a year-to-date return of 45.8% on LSI shares.
We believe that LSI was a potent acquisition target as the company has a broad range of products that enables it to serve a diverse clientele in the hard disk drive (HDD), server and networking end markets. Also, the company’s association with Cisco (CSCO) in the networking space is a positive.
Moreover, LSI’s product launches and higher sales of flash-based products are expected to provide adequate support to revenue growth. In addition, LSI’s rapid traction in the growing PCIe flash adapter market segment coupled with continuous share buyback and dividend payout are expected to boost investor confidence.
On Oct 23, LSI reported modest third-quarter 2013 results with the top line lagging the Zacks Consensus Estimate but the bottom line matching the same. The continuing macro uncertainty, competition from its peers, a declining PC market and the company’s conservative guidance are near term concerns.
Currently, LSI carries a Zacks Rank #3 (Hold). Juniper Networks, Inc. (JNPR) is a better-ranked stock in the technology sector with a Zacks Rank #1 (Strong Buy).
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