PHILADELPHIA — LSI Logic Corp. said Monday it will purchase rival storage and communications chipmaker Agere Systems Inc. for $4 billion in stock, a move that will help it expand into the fast-growing market for the electronic brains of portable gadgets.
Agere shareholders will receive 2.16 shares of LSI for each Agere share held, valuing Agere at $22.81 per share. The purchase price represents a 28 percent premium to Agere's Friday closing price of $17.79 on the New York Stock Exchange.
Shares of Allentown-based Agere rose $1.50, or 8.4 percent, to close Monday at $19.29, while LSI, of Milpitas, Calif., fell $1.44, or 14 percent, to $9.12. Both trade on the New York Stock Exchange.
Agere traces its history back to AT&T's famed Bell Labs. It was spun off from Lucent Technologies in 2001. Lucent, for its part, just merged with Alcatel of France to form Alcatel-Lucent.
The acquisition of Agere boosts LSI's business in cell phones, MP3 players and other portable media devices, and provides a chance to improve efficiency and cut costs. LSI's chips are found in computer hard drives, DVD recorders and other devices, but it doesn't have a strong foothold in mobile devices.
The combined company will use the LSI Logic name and have about 9,100 employees. It will be headquartered in Milpitas but maintain a "significant presence" in Allentown.
There will likely be job cuts, but the company did not say how many positions will be trimmed.
"It's likely in cases such as this there will be an overlap in functions," LSI President and Chief Executive Abhi Talwalkar said.
In a conference call with analysts, Talwalkar said the company will have an edge in several markets, from storage to networking to consumer electronics.
"It gives them a good entree into the mobile arena," said Jim Feldhan, president of Semico, a semiconductor research and consulting firm in Phoenix. "The mobile market has become the largest market for chips."
Feldhan said it costs millions of dollars to design a chip and the expense is better justified for products that target fast-growing markets, such as mobile devices. Nearly 1 billions cell phones are expected to be sold this year, for example, and by 2010 that number will rise to 1.2 billion, Feldhan said.
Suji De Silva, an analyst at Cathay Financial, said the deal lets LSI offer a "full breadth of products" to their customers.
LSI will issue about 379 million shares to complete the acquisition. LSI shareholders will own 52 percent of the combined company, while Agere holders will own 48 percent.
The two companies had combined revenue of $3.5 billion for the 12-month period ending Sept. 30, 2006. Together, they own more than 10,000 issued and pending U.S. patents.
Talwalkar and nonexecutive Chairman James Keyes will remain in their roles at the new company. The new board will be comprised of nine members, with six directors designated by LSI and three by Agere.
The deal is expected to close in the first quarter of next year, subject to shareholder approvals, customary closing conditions and regulatory clearance.