Chipmaker Broadcom to buy network gear maker Brocade for $5.5 billion

[November 02, 2016]  (Reuters) - Chipmaker Broadcom Ltd said on Wednesday it would buy network gear maker Brocade Communications Systems Inc for $5.5 billion in cash, to expand its fiber channel and data storage businesses.

The $12.75 per share offer represents a premium of 46.7 percent to Brocade's close on Friday.

Bloomberg reported on Monday that Brocade was in talks to sell itself.

Brocade shares were up 7.2 percent at $12.05 in premarket trading on Wednesday. Broadcom shares were untraded.

Singapore-based Broadcom, formerly called Avago, is known for its connectivity chips, while California-based Brocade makes networking hardware, software and storage products.

"This strategic acquisition enhances Broadcom’s position as one of the leading providers of enterprise storage connectivity solutions to OEM customers," Broadcom Chief Executive Hock Tan said in a statement.

Customers use Brocade's fiber channel protocol-based networking products to build storage area networks within their data centers.

Broadcom said it planned to divest Brocade's IP networking business, consisting of wireless and campus networking, data center switching and routing, and software networking solutions.

A big part of Brocade's IP networking business that Broadcom plans to divest was acquired as part of Brocade's $1.5 billion acquisition of Ruckus Wireless earlier this year. This unit generated $209 million in product revenue in the third quarter.

Broadcom Limited company logo is pictured on an office building in Rancho Bernardo, California May 12, 2016. REUTERS/Mike Blake

"We will work with Broadcom as it seeks to find a buyer for our IP Networking business," Brocade Chief Executive Lloyd Carney said in a statement.

Reuters reported on Tuesday that a Broadcom-Brocade deal was imminent.

Broadcom said it would take on about $400 million of Brocade's debt and fund the deal with available cash and debt.

Brocade shares had gained nearly 30 percent since the takeover report appeared on Monday.

(Reporting by Supantha Mukherjee in Bengaluru; Editing by Sriraj Kalluvila and Ted Kerr)

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