Agere, LSI Logic Merger Approved: Shareholders of Chipmakers OK Proposal That Will Create Company With $3.5 Billion in Annual Revenue.

By Jeanne Bonner, The Morning Call, Allentown, Pa.

Mar. 30–Agere Systems’ shareholders Thursday approved an offer to merge with LSI Logic Corp., concluding its six-year stint as an independent company and ending local ownership of the Lehigh Valley’s largest technology company.

LSI Logic’s shareholders also approved the deal at a meeting Thursday at its headquarters in Milpitas, Calif., where the combined company will be based.

Officials said Thursday that LSI Logic expects to employ more than 1,000 workers in the Lehigh Valley. That will put the company among the region’s top 25 employers. At the beginning of the year, Agere employed 1,500 people at two locations here, making it the region’s 14th largest employer.

LSI Logic’s decision to keep so many Agere employees here sends a powerful message about “the caliber of the people on the East Coast,” said Agere Chairman Harold Wagner in an interview after the meeting.

The deal creates a company with $3.5 billion in combined annual revenues that sells a broad array of semiconductors for hard-disk drives used in computers, network storage systems and portable devices, as well as chips for cell phones and other products.

The company will use the LSI Logic name. Agere’s shares will trade for the last time today. The deal’s value, initially pegged at about $4 billion, depends on the closing price of LSI’s stock today.

Agere’s shareholders approved the deal at the company’s last annual meeting. Held at Raritan Valley Community College in North Branch, N.J., the meeting was subdued. Fewer than 50 shareholders attended, and Agere executives fielded only a handful of questions.

It was a far cry from past meetings in which shareholders lambasted executives, saying they had squandered the potential of Agere, which was once a part of AT&T and Lucent Technologies.

Agere traces its roots to the renowned Bell Labs, which was AT&T’s research division. Its plant on Union Boulevard in Allentown was the site of the first production line for transistors.

The company employed 10,250 people, between the Lehigh Valley and Reading area, when Lucent spun it off as an independent business in 2001. The company’s success led local leaders to speculate about a cluster of semiconductor companies in the Valley, drawn by and complementing Agere.

Those plans began to fall apart in 2001. The collapse of the tech industry that year hit Agere hard. The company lost almost $4.5 billion over just two quarters. Thousands of layoffs, plant closings and extensive restructuring could not save Agere, even as other semiconductor-makers rebounded.

When he took over as Agere CEO in October 2005, Richard Clemmer said he would consider all strategic options. Agere announced in December that it would be acquired by LSI Logic. At the time, officials said the buyout gives both companies a better chance to succeed.

On Thursday, Clemmer said Agere considered a leveraged buyout, in which investors would have borrowed money to acquire it and take the company private. But he said such a deal would have prevented Agere shareholders from having a continued investment in the company.

“It gives us the ability to protect our employees and our customers, and also the most effective way to protect the investment of our shareholders,” Clemmer said.

Clemmer, who has been a board member since 2002, said he will leave at the end of next month. He never relocated to the Valley, commuting instead between his home in California and Allentown. In his short tenure, Agere produced its first annual profit. It also reported its lowest revenue ever.

“It’s with a lot of disappointment that I become disengaged with the entity,” Clemmer said.

He said two executives from LSI Logic will relocate here from California, including John Gibson, the head of human resources. Some Agere executives will retain their jobs. Agere’s Jean Rankin, for example, will remain as general counsel of the combined company.

But Clemmer acknowledged there is “anxiety” among employees in the support areas where redundant positions will be cut. Agere has not said how many people will lose their jobs. Agere executives who are leaving include Peter Kelly, chief financial officer, and Samir Samhouri, executive vice president for the networking division, which makes chips for data networks.

“Most people are excited about the merger,” Clemmer said of employees. “Obviously, people who are affected by the synergies won’t be excited because they will be losing their jobs.”

At the shareholder meeting, a few investors asked procedural questions such as the date that Agere’s stock will cease trading. One shareholder and former employee, Robert Longenecker of Reading, asked if the merger would affect the company’s pensions. Rankin said LSI Logic won’t be able to legally change the pension plans.

Longenecker, who worked at Agere’s plants in Allentown and near Reading for 32 years, tentatively welcomes the merger.

“It’s interesting Agere’s stock price has risen,” Longenecker, 57, said after the meeting. “I guess with LSI, it’s a wait and see thing.”

Agere’s stock closed at $21.71 Thursday, up 0.7 percent, or 16 cents per share. LSI Logic’s stock closed at $10.03, up 0.7 percent, or 7 cents per share. Both stocks trade on the New York Stock Exchange.

jeanne.bonner@mcall.com

610-820-6539

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Copyright (c) 2007, The Morning Call, Allentown, Pa.

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