Broadcom investors are not buying into the $37 billion offer, could the biggest acquisition ever fall through?

Investors in Broadcom, a major technology innovator and global leader in communications semiconductors, have filed a class action lawsuit to block the company’s $37 billion acquisition by chipmaker Avago. The lawsuit seeks injunctive relief to protect the rights of the plaintiffs and other similarly situated Broadcom shareholders.

On May 28 this year, Avago announced that it would acquire Broadcom for $37 billion, the largest merger and acquisition in the semiconductor industry. Avago will pay $17 billion in cash and $20 billion in stock. This will allow Broadcom shareholders to own approximately 32% of the combined company. This acquisition will create a new company with a market value of $77 billion, and the transaction was originally scheduled to be completed in March 2016.

The combined market value is expected to be US$77 billion, ranking behind Intel and Qualcomm and ahead of Texas Instruments and NXP + Freescale.

So why are investors not buying into this number?

According to previous reports, Broadcom shareholders include two co-founders Henry Nicholas and Henry Samueli, who together hold about 8.6% of Broadcom shares, worth about $3 billion. People familiar with the matter revealed that according to the wishes of the founders, Broadcom and Avago have discussed the partnership. It is reported that Henry Samueli, CTO and chairman of Broadcom, will serve as CTO of the new company; Henry Nicholas will serve as a strategic advisor and report to Hawk Tan, president and CEO of Avago Technologies.

So, can it be understood that except for some individuals such as the two co-founders, most investors (mainly fund companies) cannot benefit from it?

The law firm hired by the plaintiffs said Broadcom failed to consider the interests of its shareholders in the transaction and violated its fiduciary duty of loyalty, and that the company provided "materially false and misleading registration records" in its S-4 form with the U.S. Securities and Exchange Commission to ensure that shareholders accepted the acquisition offer.

The complaint seeks injunctive relief against Plaintiff and other similar Broadcom stockholders as of December 28, 2015.

Avago was acquired by a private equity group led by Silver Lake and KKR for $2.66 billion in 2005.

Broadcom has more investors, as shown in the table below.

Perhaps Broadcom's investors think that Broadcom can do better and get more than just $37 billion.

Let's take a look at Broadcom's sales in the first half of this year. According to IC Insights, in the first half of 2015, Broadcom ranked 9th among global semiconductor companies, with total sales of $4.154 billion in the first half of the year, a 2% increase in the second quarter over the first quarter. Avago ranked 12th, with total sales of $3.311 billion in the first half of the year, a 4% increase in the second quarter over the first quarter. After the combined sales of Avago and Broadcom, they ranked seventh in the global semiconductor list.