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.
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 acquires Brocade in $5.9 billion deal
Chipmaker Broadcom (AVGO -0.38%) has announced an offer to acquire Brocade Communications (BRCD) in all-cash deal valued at $5.9 billion (including $400 million of net debt). That values Brocade at $12.75 per share, representing a 47% premium relative to last Friday's closing price. Broadcom will fund the deal with cash on the balance sheet combined with new debt financing. The official news comes following market speculation that the two companies were putting together a deal.
But as with the entire IT market, mergers and acquisitions are common in networking, as the giants snatch up innovative startups to build up their product lines. There have been several significant deals, including chipmaker Broadcom's $5.9 billion agreement to aquire Brocade.
Singapore-based Broadcom announced Nov. 2 that it has agreed to buy San Jose-based Brocade for $5.9 billion. The chipmaker plans to retain Brocade's Fibre Channel SAN switching business, but sell its IP networking business, including Ruckus Wireless, which Brocade acquired earlier this year. Broadcom, which makes Ethernet switch chips, said the deal will boost its portfolio of enterprise storage and networking products.
When Brocade bought Ruckus for approximately $1.2 billion, the company said the deal would help it target the emerging IoT and 5G markets. At the same time, the acquisition marked yet another M&A deal in a rapidly consolidating WLAN market.
Ruckus began trading on the New York Stock Exchange in 2012,[4] and was delisted in 2016,[5] after it was acquired by Brocade Communications Systems for approximately $1.5 billion on May 27, 2016.[6] Ruckus Wireless and Brocade ICX line of Switching products were acquired by Arris International for $800 million in a deal finalized on December 1, 2017.[7][8] The company was renamed as Ruckus Networks, an ARRIS company from Ruckus Wireless. On April 4, 2019, CommScope completed its acquisition of Arris, which included the recently acquired Ruckus.[9]
"We are creating one of the world's largest infrastructure technology companies," Tan said on a conference call Thursday discussing the deal. "With the addition of VMware, our software business will now represent close to half of our total pro forma revenue, with approximately $20 billion of software revenue for fiscal '21."
Broadcom has had trouble landing large deals in the past. Last year, a potential $20 billion acquisition of business intelligence software maker SAS Institute fell apart a day after the deal was leaked to The Wall Street Journal. Broadcom made a $130 billion failed hostile takeover bid for Qualcomm in 2017 that was slapped down by President Trump over national security concerns.
VMware did secure a "go-shop" clause in the deal, which allows it to solicit offers from other parties until July 5. Should VMware enter into a different transaction before that date, it will owe Broadcom a $750 million break-up fee, according to a SEC filing. If regulators block the deal, Broadcom would owe VMware $1.5 billion.
For Tan, now 70, the deal would be the culmination of a string of acquisitions that has helped him turn Broadcom into a technology conglomerate worth $225 billion, along the way building a reputation as an astute dealmaker and ruthless cost-cutter.
Broadcom offered $61 billion in cash and stock for VMware, a 50% premium to where the shares of the latter were trading. To clinch the deal, Tan also agreed to give VMware 40 days from the signing of the deal to search for another suitor who may offer a better price. VMware said yes.
A spate of deals followed as Tan embarked on consolidating the semiconductor industry, often with backing from Silver Lake. In 2014, Avago paid $6.6 billion for storage chipmaker LSI Corp. In 2015, it acquired Broadcom for $37 billion and took its name. In 2016, Broadcom acquired network gear maker Brocade Communications Systems Inc for $5.9 billion.
In 2017, Broadcom launched a hostile $117 billion takeover bid for rival chipmaker Qualcomm Inc that would have been the largest technology deal of all time. It was thwarted by the US government over concerns that Broadcom, which was at the time headquartered in Singapore, would become too dominant in the US semiconductor industry at the expense of innovation. 2ff7e9595c
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