LSI Corporation Faces Investigation

Zacks

Reportedly, LSI Corporation (LSI) is facing an investigation by Levi & Korsinsky, a national law firm, related to the breach of fiduciary duty and violation of state rules and regulations in the deal with Avago Technologies Limited (AVGO), a leading analog semiconductor manufacturer.

 Avago Technologies had entered into a definitive agreement to acquire LSI for $6.6 billion in cash. LSI shareholders will receive a cash payment of $11.15 for each LSI share.

The transaction is expected to be completed within the first half of 2014, subject to regulatory approvals and fulfillment of customary closing conditions.

The strategic move was aimed to diversify Avago's existing business line from wired infrastructure, wireless and industrial businesses to the storage chip market to boost revenues in the face of industry consolidation and challenging macroeconomic conditions.

With the announcement of the deal, LSI shares jumped 38.6% to close at $10.96 on Dec 16. Even Avago shares, which were up 42.7% so far this year till Friday, were up 9.8% . The ensuing investigation is aimed at determining whether the LSI board has sufficiently discharged its duties related to the sale and to verify whether or not Avago Technologies has adequately paid for LSI shares.

LSI has a broad range of products that enables it to serve a diverse clientele in the hard disk drive (:HDD), server and networking end markets. We believe that LSI’s focus on flash-based technology will be beneficial for the company, going forward.

Additionally, LSI’s associations with Cisco Systems, Inc. (CSCO) in the networking space should positively impact the company. Moreover, continuous share buybacks and dividend payouts are expected to boost investor confidence.

However, sluggish macroeconomic conditions and competition from its peers are the near-term headwinds. Moreover, the company’s conservative guidance could also be an overhang in the near term.

Currently, LSI Corp carries a Zacks Rank #3 (Hold). A better ranked stock in the technology sector is Micron Technology Inc. (MU), with a Zacks Rank #1 (Strong Buy).
 

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