Broadcom Acquiring Brocade For $5.9 Billion, Plans To Divest IP Networking Business

Semiconductor maker Broadcom is acquiring networking systems supplier Brocade Communications Systems for $5.9 billion, the companies confirmed Wednesday.

Broadcom said it would retain Brocade's fibre channel SAN switching business and divest Brocade's IP networking business – including the recently acquired Ruckus Wireless.

"This strategic acquisition enhances Broadcom's position as one of the leading providers of enterprise storage connectivity solutions to OEM customers," said Hock Tan, president and CEO of Broadcom, in a statement. "With deep expertise in mission-critical storage networking, Brocade increases our ability to address the evolving needs of our OEM customers. In addition, we are confident that we will find a great home for Brocade’s valuable IP networking business that will best position that business for its next phase of growth."

[Related: Brocade, Ruckus Leaders Talk Channel Future, New Market Opportunities And The Need For End-To-End Solutions]

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Reports that Brocade was about to be acquired have been circulating for several days. Monday Bloomberg reported that Broadcom was one of the interested parties and a deal could be announced as early as this week.

Broadcom is paying $12.75 per share of Brocade stock in an all-cash transaction for a total of $5.5 billion, plus $400 million of net debt. Brocade's board of directors has approved the deal and Broadcom expects to complete the acquisition in the second half of its fiscal 2017, which began Oct. 31, 2016. The deal is subject to approval by Brocade's shareholders, as well as regulatory approvals.

Broadcom said the acquisition is not conditioned on the divestiture of Brocade's IP networking business.

"This transaction represents significant value for our shareholders, who will receive a 47 percent premium from the Brocade closing share price on Friday, October 28, 2016, and creates new opportunities for our customers and partners," said Lloyd Carney, Chief Executive Officer of Brocade, in a statement. ’Our best-in-class FC SAN solutions will help Broadcom create one of the industry’s broadest portfolios for enterprise storage. We will work with Broadcom as it seeks to find a buyer for our IP networking business, which includes a full portfolio of open, hardware and software-based solutions spanning the core of the data center to the network edge."

The deal breaks up San Jose, Calif.-based Brocade, which just completed its $1.2 billion acquisition of wireless vendor Ruckus Wireless in May. Brocade reported $2.26 billion in revenue in fiscal 2015. It just closed its fiscal 2016 on Monday and has not yet reported results for its fourth quarter and full fiscal 2016.

Broadcom, co-headquartered in San Jose, Calif. and Singapore, said it anticipates that Brocade's fibre channel SAN business would contribute approximately $900 million of pro forma non-GAAP EBITDA earnings in its fiscal 2018.