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

Chipmaker Broadcom Ltd (AVGO.O) said on Wednesday it would buy network gear maker Brocade Communications Systems Inc (BRCD.O) for $5.5 billion to expand its fiber channel and data storage businesses, the latest in a flurry of chip sector deals.

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

Brocade’s fiber channel protocol-based networking products are used to build storage area networks in data centers.

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

Brocade shares were up 8.5 percent at $12.20 in premarket trading, while Broadcom’s were up 2 percent at $172.30 .

Up to Tuesday’s close, Brocade’s shares had gained nearly 30 percent since Bloomberg reported on Monday that the company was in talks to sell itself.

The chip industry has been undergoing rapid consolidation as companies try to capture market share, much of it related to connected devices and cars, and Avago/Broadcom has been one of the sector’s most prolific acquirers.

Since taking over the top job at Avago a decade ago, Chief Executive Hock Tan has turned around a small chipmaker into a giant with a market capitalization of $67 billion.

In the biggest chip deal ever, smartphone chipmaker Qualcomm Inc (QCOM.O) agreed last week to buy NXP Semiconductors NV (NXPI.O) for about $38 billion, making it the leading supplier to the fast-growing automotive chips market.

The Qualcomm-NXP deal topped Avago’s $37 billion acquisition of Broadcom Corp last year that formed Broadcom Ltd.

Broadcom, whose customers include Cisco Systems Inc (CSCO.O), said it planned to divest Brocade’s IP networking business, consisting of wireless networking, data center switching 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.

“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.

Evercore was Brocade’s financial adviser.

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


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