Broadcom to buy Brocade for $5.9bn

Acquisitive Broadcom buys Brocade for its storage technology, but will look for a buyer for Ruckus Wireless

Semiconductor giant Broadcom is to buy networking equipment specialist Brocade in a deal valued at $5.9bn, intended to strengthen Broadcom's presence in the storage hardware sector.

The all-cash deal represents a 47 per cent premium on Brocade's closing stock price on Friday, and is therefore unlikely to be rejected by shareholders, although it will require regulatory approval. Broadcom will fund the deal via cash-in-hand and the issue of new debt, a strategy aided by the current ultra-low interest-rate environment.

Brocade specialises in fibre channel storage-area network switching, which is a $1.5bn business for the company, and IP networking. Its technology will broaden Broadcom's data centre offerings.

However, the joint statement from the companies indicates that Broadcom will be looking for a buyer for Brocade's IP networking business, which is largely based on Brocade's $1.5bn purchase of Ruckus Wireless earlier this year.

"We will work with Broadcom as it seeks to find a buyer for our IP Networking business which includes a full portfolio of open, hardware and software-based solutions spanning the core of the data center to the network edge," said Brocade CEO Lloyd Carney.

Broadcom CEO Hock Tan described the purchase as a "strategic acquisition" that would enhance Broadcom's position "as one of the leading providers of enterprise storage connectivity solutions to OEM customers".

He continued: "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."

Broadcom used to be called Avago, but changed its name following the $37bn takeover of Broadcom. It is one of the most acquisitive companies in semiconductors, taking advantage of low interest rates to build itself into a major player in networking and storage semiconductor technology.

Broadcom focuses on four primary markets: wired infrastructure, wireless communications, enterprise storage and the industrial sector. Its products are used in data centre networking, telecoms, broadband access, smartphones and mobile base stations, and power generation and alternative energy systems.

The Broadcom deal for Brocade comes just days after smartphone chip-maker Qualcomm agreed a $47bn deal to acquire NXP Semiconductors.