The European Commission has approved proposed $37 billion acquisition of Broadcom Corp. (BRCM) by Avago Technologies Limited (AVGO). Both companies are global manufacturers of semiconductors. The Commission concluded that the merged entity would continue to face effective competition in Europe.

The Commission's investigation showed that the portfolios of the companies are mainly complementary since Broadcom makes "off-the-shelf" chips for the broadband and connectivity market segments, while Avago makes custom-built chips for special applications in the analog wireless integrated circuits, enterprise, storage and industrial segments.

Nevertheless, the Commission said it had some concerns about the vertical relationship created by the transaction, since Avago supplies certain intellectual property to some of Broadcom's competitors. The Commission's concern was that after the takeover Avago could have had an incentive to withhold this intellectual property in order to extend the merged entity's leading market position in the so-called "switch chips" market.

However, already during the Commission's assessment of the case, Avago addressed these concerns by entering into commercial agreements with other "switch chip" manufacturers. These agreements will ensure that other "switch chip" manufacturers will continue to have access to the necessary intellectual property on reasonable terms.

In May, Avago Technologies Limited and Broadcom Corp. announced they entered into a definitive agreement under which Avago would acquire Broadcom in a cash and stock transaction. Avago will acquire Broadcom for $17 billion in cash consideration and the economic equivalent of approximately 140 million Avago ordinary shares, valued at $20 billion.

By: DocMemory
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