Chip Maker Broadcom to Buy Brocade for $5.5 Billion -- Update
November 02 2016 - 1:21PM
Dow Jones News
By Don Clark and Joshua Jamerson
Broadcom Ltd. agreed to buy Brocade Communications Systems Inc.
for $5.5 billion, expanding beyond its main business in chips to
add boxes that help connect storage systems to computers in data
centers.
Broadcom, one of Silicon Valley's most aggressive acquirers,
said it plans to sell Brocade's other communications technology
businesses to avoid competing with companies that now buy Broadcom
chips.
The deal stands to help Broadcom reduce its reliance on sales of
wireless chips for smartphones, a market that has slowed lately.
Apple Inc., its largest customer, in October said it sold 45.5
million iPhones in the quarter ended in September, 2.5 million
fewer than a year earlier.
Broadcom agreed to pay $12.75 a share for Brocade, a 47% premium
over Brocade's closing share value on Friday, before news outlets
reported on talks of a potential deal.
Brocade's stock rose 10% to $12.39. Broadcom's shares rose 1% to
$171.15.
The company now called Broadcom operated as Avago Technologies
Ltd. until February, when it completed a $37 billion deal to buy
Broadcom Corp. That was the largest acquisition in the history of
the semiconductor industry before Qualcomm Inc. last month
announced a $39 billion deal for NXP Semiconductors NV.
Under Hock Tan, Broadcom's chief executive, the company has
pursued a string of acquisitions, in some cases moving quickly to
sell off parts of the acquired operations. The company in 2014
purchased LSI Corp., for example, and then sold off businesses to
Seagate Technology PLC and Intel Corp.
Broadcom has reason to pursue the same tactic in the latest
deal. It sells networking chips to most of the major makers of
network switching systems, including Cisco Systems Inc., Hewlett
Packard Enterprise Co. and others.
Brocade, best known for storage networking boxes that other
companies sell under their own brands, has diversified into
switching systems and software. If Broadcom kept those businesses,
it would become a competitor to some of its largest customers, a
situation most chip makers try to avoid.
So Broadcom, which already sells some storage-related chips,
plans to sell all of Brocade's businesses outside that sector and
expressed confidence it can find buyers.
"We are confident that there will be a fair amount of interest,"
said Thomas Krause, Broadcom's chief financial officer, in an
interview.
The divestitures are expected to include Wi-Fi device maker
Ruckus Wireless, which Brocade agreed to buy in April for $1.2
billion.
"Having just completed the Ruckus acquisition, we were confident
in our strategy, our team and our path forward," wrote Lloyd
Carney, Brocade's chief executive, in an internal message to the
company's employees.
"We were not looking to sell the company. However, when Broadcom
approached us with a compelling offer, we had an obligation to
consider that offer, along with other alternative opportunities,"
he said.
The deal with Brocade, subject to regulatory approval, is
expected to close in the second half of Broadcom's current year,
which began Oct 31.
Write to Don Clark at don.clark@wsj.com and Joshua Jamerson at
joshua.jamerson@wsj.com
(END) Dow Jones Newswires
November 02, 2016 13:06 ET (17:06 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Brocade Communications Systems, Inc. (NASDAQ:BRCD)
Historical Stock Chart
From Mar 2024 to Apr 2024
Brocade Communications Systems, Inc. (NASDAQ:BRCD)
Historical Stock Chart
From Apr 2023 to Apr 2024
