Chipmaker Broadcom on Wednesday said it has agreed to purchase network gear maker Brocade Communications Systems for $5.5 billion and take on an additional $400 million of debt, pushing the deal’s total to $5.9 billion.
Broadcom is offering $12.75 per share for Brocade, representing a sizable 47 percent premium over the $8.69 the stock closed at last Friday.
Brocade CEO Lloyd Carney said in a blog post that after having just completed its purchase of Ruckus Wireless, they were confident in their strategy, their team and their path forward. In other words, they were not looking to sell the company.
When Broadcom approached them with a compelling offer, however, Carney said they had an obligation to consider the offer alongside alternative opportunities. After careful consideration, Carney said the team felt the acquisition was in the best interest of the company and its shareholders.
Carney said their Storage Area Network (SAN) business will strongly complement Broadcom’s offerings and capabilities, helping to create one of the industry’s broadest portfolios for enterprise storage.
Brocade’s IP Networking business, however, won’t be kept around due to competitive overlap with some of Broadcom’s customers. That said, Broadcom will look to find a buyer for this segment of the business which includes Ruckus, the business Brocade paid $1.2 billion for earlier this year.
Broadcom is no doubt familiar with the acquisition process as the company itself was purchased by rival Avago Technologies for $37 billion in mid-2015.
The Brocade deal is expected to close in the second half of Broadcom’s fiscal year 2017 pending regulatory approval.