Avago Technologies (AVGO) and Emulex (ELX) are surging today after Avago announced that it will be acquiring Emulex for $8 per share, which is why investors pounced on both stocks today. 

ELX has seen a massive surge of nearly 25% in its share price today, currently trading for $7.96.  The company normally has a trading volume of about 700,000 shares daily.  On news of the acquisition though, volume has skyrocketed…and then some, as the volume is close to 24 million shares traded thus far today.

Avago’s shares have seen a lot of strength today as well, as the stock price is up about 14% in trading so far today.  Volume sees an average of 1.7 million shares traded daily.  Today is not just another day though, as the volume has spiked to about 9 million shares in today’s trading.

So why have investors been jumping on both stocks today? Well for starters, the market cap for ELX is $457 million, and AVGO is buying it out in cash to the tune of about $600 million.  This may be best for ELX, as the trailing 12 month profit margin is -4.3%, and a -27.3% growth for next year. 

If ELX had all this negativity, why did AVGO go into the acquisition? Well, let’s take a look at what exactly these companies do.  You have an electronic components supplier (Avago) and a company that engages in providing network connectivity, monitoring, and managing products (Emulex). 

Perhaps Hock Tan, CEO of Avago couldn’t have said it better when he stated that “Emulex’s connectivity business fits very well with Avago’s existing portfolio serving the enterprise storage end market”.

Clearly, investors agree with this sentiment and believe that the move is a great purchase, suggesting that we could see strong trading ahead for the combined company.  

ELX is a Zacks Rank #1 (Strong Buy).  The company’s earnings report comes out on 4/29/15.

Avago is a Zacks Rank #3 (Hold). AVGO reported its Q4 earnings yesterday, beating our EPS estimate of $1.78, actually reporting EPS of $1.99.

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