The cash portion of Avago Technologies Ltd.'s cash-and-stock takeover offer for rival chip maker Broadcom Corp. is $54.50 a share.
So why did Broadcom's stock trade as high as $57.30 a share Friday before closing at $56.85, up 4% from the cash offer?
Several reasons, analysts said, including speculation that perhaps another suitor might surface for Irvine-based Broadcom, a leading maker of semiconductors for smartphones, Internet systems and other products.
Broadcom said Thursday that it had agreed to be acquired by Avago, a chip maker incorporated in Singapore with executive offices in San Jose, in a blockbuster $37-billion deal.
In a filing with the Securities and Exchange Commission, Broadcom and Avago said their deal includes a $1-billion breakup fee, a disincentive for any suitor with designs on trying to derail the Broadcom-Avago agreement.
Any deal also would need approval by Broadcom's two founders, Henry Samueli and Henry T. Nicholas III, who together control 47% of the voting power of Broadcom's stock.
Nonetheless, there was speculation that two other large chip makers, Intel Corp. and Qualcomm Inc., might be mulling over an offer for Broadcom. Intel and Qualcomm declined to comment.
Avago's chief executive, Hock Tan, even told analysts Thursday that "we feel a little paranoid" about a potential rival bidder but that "at the end of the day we think we put a pretty strong deal forward."
The jump in Broadcom's stock price Friday more likely reflects the terms of Avago's offer to buy Broadcom, a deal that's expected to close in the first quarter of next year, analysts said.
Broadcom holders can choose to get the $54.50 in cash, or two types of Avago shares or a combination of those choices for each of their Broadcom shares.
But overall the deal will be prorated to be half in cash and half in stock in the newly combined company, to be called Broadcom Ltd.
And with Avago's stock also climbing -- it rose $5.69, or 4%, to $148.07 a share Friday -- the blended value of Avago's offer for Broadcom probably will rise before the deal is completed, said Craig Ellis, co-director of research at the investment firm B. Riley & Co.
"That's the dynamic at play with Broadcom" and its stock price Friday, Ellis said.
Indeed, that dynamic is partly why analyst Stacy Rasgon of the investment firm Sanford C. Bernstein on Friday raised his target price for Broadcom to $60 a share.
But Rasgon also said in a report to clients that he doesn't yet know what actions to recommend to those holding Broadcom stock. "Frankly, we're not quite sure what to do with it just yet," he said.
That's because there are several choices for Broadcom investors. Among them: They can sell their shares now on the market and keep the cash or buy Avago's stock on the market, or they can hold Broadcom's shares for now and then opt for one of the cash-and-stock choices under Avago's buyout offer.