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November 2, 2016updated 07 Nov 2016 2:30pm

Broadcom buys Brocade for $5.9 billion to expand storage connectivity

Broadcom will divest Brocade's IP networking business including Ruckus Wireless.

By Alexander Sword

Broadcom is acquiring Brocade for $5.9 billion as it seeks to expand its storage connectivity portfolio.

The acquisition will involve Broadcom holding onto Brocade’s fibre channel SAN switching business.

Brocade’s IP networking business, including Ruckus Wireless, acquired by Brocade in April for $1.2 billion, will be divested.

The transaction is expected to close in the second half of Broadcom’s fiscal 2017 year, meaning some time after 31 April 2017.

The transaction will be funded through debt financing and currently available cash.

Brocade holds nearly $1.2bn in cash but has debt of $1.5bn.

In the third quarter, Brocade’s SAN product revenue was down 9 percent to of $282 million the July-September quarter year-over-year, IP Networking product revenue went up by 36 percent to $209m, including $73 million of product revenue from Ruckus Wireless.

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Brocade“This strategic acquisition enhances Broadcom’s position as one of the leading providers of enterprise storage connectivity solutions to OEM customers,” stated Hock Tan, President and Chief Executive Officer 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.”

“This transaction represents significant value for our shareholders, who will receive a 47% premium from the Brocade closing share price on Friday, October 28, 2016, and creates new opportunities for our customers and partners,” said Brocade CEO Lloyd Carney.

“Our best-in-class FC SAN solutions will help Broadcom create one of the industry’s broadest portfolios for enterprise storage. 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.”

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