8 Things Partners Need To Know About Broadcom's Stalled Acquisition Of Brocade

Acquisition Delayed

Broadcom's $5.9 billion blockbuster acquisition of Brocade Communications has hit a major hurdle that potentially could delay the purchase for at least a few more months.

The acquisition, which was first unveiled in November, was set to be completed on or before Aug. 1. However, the Committee on Foreign Investment in the United States (CFIUS) has halted the process with the potential of dissolving the deal altogether. The acquisition not only impacts Broadcom and Brocade -- Extreme Networks has revealed plans to purchase certain assets of Brocade from Broadcom once the deal is closed.

Here are the eight things partners need to know about where the acquisition stands right now.

Withdrawn And Refiled

The two companies discussed the acquisition proposal with the CFIUS on July 17 and agreed to withdraw and refile their notice in order to allow an additional 30-day review and discussion with the CFIUS, according to a Brocade 8-K filing with the U.S. Securities and Exchange Commission. Another 45-day review could follow the 30-day review period.

The CFIUS is a national security agency committee that reviews the security implications of foreign investments in U.S companies or operations. Broadcom has headquarters in San Jose, Calif., and in Singapore, with additional offices in China, Russia, India, Japan and Taiwan, to name a few.

'No Assurances'

Although Brocade and Broadcom say they have been and will continue to be actively engaged with the CFIUS during its review, there is still concern that the acquisition may not get approval, according to the filing.

"There can be no assurances, however, that CFIUS will ultimately agree that the parties may proceed with the proposed acquisition," said the filing.

Broadcom and Brocade did not respond to comment by press time.

End Date Extended

Under the initial agreement terms between Brocade and Broadcom, if the acquisition had not been completed on or before Aug. 1, 2017, either company could terminate the deal. However, the companies elected to extend that date to Nov. 1, 2017. No other provisions were amended or waived in the agreement, according to the filing.

Still Need China's Approval

The closing of the acquisition remains subject to other conditions including the receipt of antitrust regulatory approval in China, which has not been granted yet. The companies have already obtained antitrust regulatory approval or clearance from every other country needed including the U.S., the European Union and Japan.

'Fully Committed'

Both Broadcom and Brocade say they remain "fully committed" to the proposed acquisition and will "continue to work diligently and cooperatively" to close the deal, according to the filing. Broadcom's acquisition of Brocade is solely for the vendor's Fibre Channel networking products with plans of selling off other pieces of Brocade's business to separate vendors.

Acquisition Expected To Close In Q4

The companies are now expecting that the acquisition will be completed during its fourth fiscal quarter, which ends on Oct. 28. At a stockholder meeting in January, the acquisition was approved by the Brocade holders of 99 percent of the shares.

What Does This Mean For Extreme Networks?

Extreme Networks unveiled plans in March to acquire Brocade's networking business for $55 million in a move to better compete against Cisco Systems and Hewlett Packard Enterprise. This deal is contingent on the Broadcom deal closing.

Extreme CEO Ed Meyercord told CRN in May that he expected to ccomplete the deal in August. The company now says it will close its transaction with Broadcom within two to three business days of the completion of Broadcom-Brocade deal.

"As we march toward becoming the third largest end-to-end enterprise networking provider, we are confident our acquisition of Brocade's data center networking business will move forward," said Meyercord in a statement. "The delay will provide us with additional time to integrate Avaya operations and prepare for our business combination with Brocade. We are working to ensure a smooth transition for new and existing employees, customers and partners from both Avaya and Brocade."

AT&T Acquisition Complete

In June, AT&T unveiled its plans to acquire Brocade's Vyatta Software Platform. Terms of the deal were not disclosed. On July 7, the telecom giant completed the acquisition and hired dozens of Brocade employees mostly from California and the U.K. as part of the deal. AT&T says it expects to virtualize and software-control 75 percent of its network by 2020, according to a release.