Is the Avago IPO For You? (AVGO, HPQ, A)

Avago Technologies Ltd. (NASDAQ: AVGO) is today’s IPO.  The deal priced 43.2 million shares at $15.00 per share to raise approximately $621 million.  This was at the high end of the indicated price range, and this was also increased in shares from the 41.4 million shares filed in yesterday’s amendment from the 36 million shares originally indicated for sale.  Avago is a KKR and Silver Lake backed leveraged buyout of the former Hewlett Packard (NYSE: HPQ) analog semiconductor business that became part of Agilent Technologies Inc. (NYSE: A).  Is it for you?

Of the offering, 21.5 million ordinary shares are being sold by the company to raise cash for its internal operations and 21.7 million ordinary shares are being sold by holders.  Technically, this is the second largest IPO of 2009, and its implied market cap is north of $3.5 billion.  It is also based in Singapore and claims to be the world’s largest private semiconductor company and is the seventh largest fabless semiconductor company.

The deal was underwritten by lead managers Deutsche Bank, Barclays Capital, Morgan Stanley, and Citi.  Co-managers are listed as Credit Suisse, Goldman Sachs, J.P. Morgan, UBS, KKR, and ABN AMRO.

Its Q2 results are public data, and showed quarterly revenue fell by 20.9% to $325 million.  Its adjusted EBITDA of $40 million was down from $85 million in the same period a year ago; its net loss was $31 million, compared with net income of $6 million last quarter.  On a non-GAAP basis the company posted a $2 million loss, down from a gain of $37 million a year ago.Cash and cash equivalents was $241 million, again from $195 million at end of prior quarter.

Avago announced further job cuts of up to 200 employees back in May and noted that it has cut approximately 475 workers (13%) through attrition and restructuring.  The company claims roughly 6,500 products in four primary target markets: wireless communications, wired infrastructure, industrial and automotive electronics, and consumer and computing peripherals.

JON C. OGG
August 6, 2009