Broadcom to buy network equipment maker Brocade for $5.5 bn

Chipmaker Broadcom Ltd yesterday struck a deal to buy network equipment maker Brocade Communications Systems Inc for $5.5 billion.

Broadcom, best known for its connectivity chips, which find extensive applications in smartphones made by Apple and Samsung, is offering to pay $12.75 per share, a premium of 46.7 per cent to Brocade's Friday closing price.

The deal comes just a few days after smartphone chipmaker Qualcomm Inc struck a deal to buy NXP Semiconductors NV for about $39 billion, the biggest ever deal in the semiconductor industry. (See: Qualcomm to buy NXP Semiconductors for $39 bn)

The deal is valued at around $5.5 billion, plus $400 million of net debt.

Broadcom expects to fund the transaction with new debt financing and cash at hand.

Broadcom, based in California and Singapore, will retain Brocade's Fibre Channel SAN switching business but divest its IP networking business, which makes controllers and access points that help businesses offer high-speed internet to their customers.

Post closing, the acquisition is expected to be immediately accretive to Broadcom's non-GAAP free cash flow and earnings per share. It is expected to add about $900 million in non-GAAP EBITDA in fiscal year 2018.

Nasdaq-listed Brocade specialises in data and storage networking products. Originally known to be a leader in Fibre Channel storage networks, the company expanded its focus to include a wide range of products for New IP and Third platform technologies.

Its portfolio now include routers and switches optimised for data centre, campus and carrier environments, IP and fibre channel storage network fabrics; network functions virtualisation and software-defined networking solutions such as a commercial edition of the OpenDaylight Project SDN Controller; and network management software that spans physical and virtual devices.

Brocade was founded in 1995, by venture capitalist and a former executive of Sun Microsystems Seth Neiman, professional auto racer - Kumar Malavalli, and Paul Bonderson - a former executive of Intel Corp and Sun Microsystems.

It has around 4,700 employees and annual turnover of $2.2 billion.

''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.

''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,'' he added.