Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS NEWS: EC approves Avago’s $37 billion acquisition of Broadcom, (Nov 23, 2015)

By Linda O’Brien, J.D., LL.M.

The European Commission (EC) has approved under the European Union (EU) merger regulation the acquisition of Broadcom Corporation by Avago Technologies Limited, the EC announced today. The transaction was examined under the normal merger review procedure.

In May 2015, Avago announced that it would acquire Broadcom for $37 billion. Upon completion of the acquisition, the combined company will have the most diversified communications platform in the semiconductor industry, with combined annual revenues of approximately $15 billion.

Both Avago and Broadcom are global manufacturers of semiconductors. Avago, based in Singapore, designs, manufactures, markets, and sells a range of semiconductors for use in wireline and wireless communications, storage applications, and industrial applications. Broadcom, based in the United States, supplies semiconductor solutions for wireline and wireless communications.

Semiconductors are materials that conduct electricity more easily than insulators, such as glass, but less easily than conductors. This characteristic makes semiconductors ideal for manipulating electronic signals. Semiconductor materials, most typically silicon, are used in semiconductor devices like microchips and their components, such as example diodes and transistors. These devices are then used in a wide-range of products such as mobile phones, computers, domestic appliances, cars, medical equipment, identification systems, large-scale industry electronics, and aerospace equipment.

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.

The EC had concerns about the vertical relationship created by the transaction, since Avago supplies certain intellectual property—technology for allowing fast data transmission between chips—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, during the assessment of the case, Avago addressed the Commission’s 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. Therefore, the Commission was able to unconditionally clear the proposed transaction, which was notified on October 2.

“Thanks to very good cooperation with the companies the Commission has been able to approve this multi-billion dollar takeover within a very short space of time while preserving effective competition in this crucial high-technology sector," said Commissioner Margrethe Vestager, in charge of competition policy.

Companies: Avago Technologies Limited; Broadcom Corporation

News: AcquisitionsMergers Antitrust