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LSI Logic did not pay $4 billion in cash for Agere Systems. On December 4, 2006, the companies announced an all-stock merger initially valued at approximately $4 billion. Agere shareholders were to receive 2.16 shares of LSI stock for each Agere share, leaving LSI shareholders with about 52% and Agere shareholders with about 48% of the combined company.
The agreement was signed on December 3, 2006, approved by both shareholder groups on March 29, 2007, and completed on April 2, 2007. The resulting business became LSI Corporation and continued trading under the ticker LSI. The original SEC filing provides the transaction terms.
The deal in plain English
In an all-stock merger, the buyer does not pay a fixed cash amount. Instead, shareholders of the acquired company receive shares in the combined business. That is what happened here.
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The exchange ratio was fixed, but the market value of the shares was not. If LSI’s stock price rose before closing, Agere shareholders would receive more valuable consideration. If it fell, the value of their consideration would decline. LSI shareholders also faced dilution because new LSI shares would be issued to Agere investors.
| Term | Detail |
|---|---|
| Agreement signed | December 3, 2006 |
| Public announcement | December 4, 2006 |
| Transaction type | All-stock merger |
| Exchange ratio | 2.16 LSI shares for each Agere share |
| Headline value | Approximately $4 billion at the announcement-date valuation |
| Pro forma ownership | Approximately 52% LSI shareholders and 48% Agere shareholders |
Legally, the transaction used an LSI subsidiary, Atlas Acquisition Corp. At closing, Agere became a wholly owned subsidiary of LSI. Calling it an acquisition is reasonable shorthand, but “merger” better describes the stock-for-stock structure.
Why LSI wanted Agere
LSI and Agere were both semiconductor companies, but their portfolios were not identical. LSI had strong positions in consumer-electronics silicon, storage systems, ASICs and adapter cards for RAID and storage interconnects.
Agere contributed cellular and mobility technology, wired networking products, communications and computing integrated circuits, and hard-disk-drive read-channel and ASIC technology. It also brought related software, reference designs and intellectual-property licensing.
The clearest overlap was in storage. That overlap could create engineering, customer and manufacturing efficiencies, but it also meant the companies would have to manage potentially redundant products and teams. Outside storage, the combination was intended to broaden LSI’s exposure to networking, communications, mobility and consumer electronics.
Management described the proposed company as a broader “silicon-to-systems” supplier, combining semiconductors with systems, software and intellectual property. The companies also promoted greater scale, expanded customer relationships and a larger engineering base. Those descriptions were management’s strategic case, not proof that the combination would automatically produce superior returns.
The financial case: growth, but especially cost savings
The announcement cited combined revenue of approximately $3.5 billion for the 12 months ended September 30, 2006. The companies together had approximately 9,100 employees, including nearly 4,300 engineers, and more than 10,000 issued and pending U.S. patents.
The most measurable near-term promise was at least $125 million in annual cost savings by 2008. Savings were expected to begin in 2007. LSI said the transaction would be slightly dilutive to 2007 earnings and meaningfully accretive in 2008, using non-GAAP measures.
That forecast reveals an important feature of the deal. The strategic rationale emphasized growth and product breadth, but the immediate financial justification depended heavily on scale and operating efficiency. A $125 million savings target would need to come from areas such as overlapping operations, facilities, procurement, manufacturing, administration and engineering work. The announcement did not establish that the target would be achieved; it was a management projection.
LSI also announced a separate authorization to repurchase up to $500 million of its stock. That was a concurrent capital-allocation decision, not payment for Agere and not part of the merger consideration.
Who controlled the combined company?
The ownership split was close, but governance was not evenly divided.
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- Abhi Talwalkar, LSI’s president and chief executive, became president and CEO of the combined company.
- James Keyes, LSI’s non-executive chairman, continued as non-executive chairman.
- The nine-member board had six members designated by LSI and three by Agere.
That arrangement gave LSI effective control even though former Agere shareholders were expected to own approximately 48% of the combined company. The transaction was therefore not an equal merger in governance terms. It was an LSI-led combination with substantial economic participation from Agere shareholders.
Approval and closing timeline
- December 3, 2006: LSI and Agere signed the merger agreement.
- December 4, 2006: The companies publicly announced the approximately $4 billion all-stock transaction.
- March 29, 2007: LSI and Agere shareholders approved the deal.
- April 2, 2007: The merger closed. The combined company became LSI Corporation and traded under the LSI ticker.
The transaction also required customary closing conditions, registration of the LSI shares to be issued, and regulatory review, including review under the Hart-Scott-Rodino Act and by European authorities. The April 2 closing—not the December announcement date—is the point at which Agere ceased to be an independent company.
What Agere shareholders actually received
At the effective time of the merger, each Agere common share converted into the right to receive 2.16 LSI common shares. LSI later reported issuing approximately 368 million shares to former Agere shareholders.
The later filing measured the issued stock for accounting purposes using a $9.905 per-share value. That figure should not be confused with the $22.81 LSI share price used to calculate the announcement’s approximately $4 billion headline value. The two figures served different purposes and reflected different dates and accounting measurements.
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Repair common Windows errors and clear accumulated junk for a smoother, more stable PC - no reinstall needed.Free scan · no reinstallDifferences between an estimated share count in the announcement and the later reported issuance are not necessarily contradictory. Transaction estimates can change because of the final capitalization, equity awards and other adjustments under the merger agreement. Employee stock options and other equity awards were adjusted or assumed according to the merger terms.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Was the merger strategically sensible?
The deal had a coherent industrial logic, but its success depended on execution.
Potential strengths
- Complementary markets: LSI added scale in storage and consumer electronics while Agere added communications, networking and mobility technologies.
- Storage capabilities: Product overlap could create a broader storage offering and shared engineering infrastructure.
- Customer reach: A wider portfolio could allow the combined company to sell more products to existing customers.
- Intellectual property: The combined patent and engineering base could support product development and licensing.
- Operating scale: The $125 million savings target offered a concrete financial rationale beyond broad growth claims.
Important risks
- Integration complexity: Combining products, factories, software, engineering teams, sales organizations and corporate cultures could delay savings.
- Product overlap: Similar storage technologies could create redundancy or force difficult portfolio decisions.
- Share-price risk: Agere investors received stock whose market value could move substantially before and after closing.
- Near-term dilution: LSI forecast 2007 non-GAAP earnings dilution before expected 2008 accretion.
- Restructuring pressure: No immediate layoffs were announced when the deal was unveiled, but achieving cost savings could eventually require consolidation or workforce changes.
- Strategic sprawl: A broader portfolio can improve reach, but it can also make a semiconductor company less focused.
The central investment question was not simply whether the companies had complementary technologies. It was whether management could turn those technologies and overlapping operations into profitable scale quickly enough to justify the dilution and integration risk.
Why “$4 billion” can be misleading
There are three separate ideas behind the headline:
- It was not cash consideration. Agere shareholders received LSI shares.
- It was based on a historical stock price. The approximately $4 billion value used LSI’s December 1, 2006 closing price of $22.81.
- It was not necessarily the final accounting value. The number of shares issued and the value recorded later reflected the actual closing capitalization and applicable accounting measurement.
For personal-finance readers reviewing an old acquisition headline, the practical lesson is straightforward: a stock deal’s advertised dollar value is a snapshot. To understand what shareholders actually received, check the exchange ratio, the reference share price, the closing date and the final number of shares issued.
Bottom line
LSI’s 2006 move for Agere was an approximately $4 billion, all-stock merger—not a $4 billion cash takeover. It gave LSI a broader semiconductor portfolio spanning storage, networking, mobility and consumer electronics, while leaving LSI in control of the combined company. The most concrete near-term financial justification was a target of at least $125 million in annual cost savings by 2008, despite expected 2007 non-GAAP earnings dilution.
The transaction closed on April 2, 2007, creating LSI Corporation. Whether it made economic sense depended less on the headline valuation than on the company’s ability to integrate overlapping businesses and deliver the projected savings.
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