Broadcom to acquire Brocade Communications for $5.5B

Broadcom's original corporate headquarters were in Irvine, Calif., until it acquired by Avago Technologies last year. Avago took on the Broadcom name but its corporate headquarters remain in San Jose, Calif., and Singapore. Photo by Coolcaesar/Wikimedia Commons

IRVINE, Calif., Nov. 2 (UPI) — Chip maker Broadcom Ltd. announced Wednesday plans to acquire Brocade Communications Systems Inc., a data and storage networking products company, for $5.5 billion.

Broadcom, which is headquartered in San Jose, Calif., and Singapore, will pay cash and assume $400 million in debt for Brocade, which is also based in San Jose.

“This strategic acquisition enhances Broadcom’s position as one of the leading providers of enterprise storage connectivity solutions [original equipment manufacturers] customers,” Hock E. Tan, the Broadcom president and chief executive, said in a news release. “With deep expertise in mission-critical storage networking, Brocade increases our ability to address the evolving needs of our OEM customers.”

Apple uses Broadcom’s chips in the iPhone.

Broadcom plans to sell Brocade’s IP networking business, including Ruckus Wireless, which Brocade agreed to buy in April for $1.2 billion.

Last year Avago Technologies purchased the chip maker for $37 billion and took the Broadcom name. Avago was originally part of Agilent Technologies, the former semiconductor arm of HP until 2009.

The transaction is subject to regulatory approval and approval by Brocade’s shareholders.

The deal is expected to close in the second half of Broadcom’s 2017 fiscal year. The board of Brocade and the executive committee of Broadcom’s board have unanimously approved the deal.

Broadcom said that Brocade investors would receive $12.75 a share in cash, which is a 47 percent premium to its closing price Friday. Shares of Brocade rose 8.3 percent to $12.16 in premarket trading. Broadcom’s stock was unchanged from $168.80 as of Tuesday’s close.

“We were not looking to sell the company,” Lloyd Carney, the Brocade chief executive, said in a post on the company’s website. “However, when Broadcom approached us with a compelling offer, we had an obligation to consider that offer, along with other alternative opportunities. After careful consideration, we concluded that Broadcom’s offer was in the best interests of our company and its shareholders.”

Brocade, with 4,712 employees, had revenue of $591 million billion in the third quarter of fiscal year 2016, according to its regulatory filing on Aug. 25.

Broadcom, with 8,500 employees, also Wednesday reported net revenue for the fourth quarter of fiscal year 2016 is now expected to be around $4.1 billion.

Last week, Qualcomm agreed to acquire NXP Semiconductors for $38.5 billion.

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