Broadcom to pay $5.9B to acquire Brocade

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Broadcom will spend $5.9 billion to acquire network gear manufacturer Brocade in a deal that includes the recently acquired Ruckus Wireless.

But the chipmaker said it plans to divest Brocade’s IP networking business in which Ruckus plays a major role.

Broadcom, which is based in Irvine, California, supplies chips to Apple and other phone vendors. Brocade is a major player in the NFV and SDN market and earlier this year bought Ruckus, which supplies Wi-Fi services and equipment to enterprises and service providers, in a deal valued at $1.2 billion. Brocade also offers software and storage products.

Broadcom intends to divest the IP networking business that consists of wireless networking, data center switching and software networking offerings. Brocade acquired Ruckus to build that business, which generated $209 million in product revenue in the most recent quarter, Reuters reported.

The offer of $12.75 per share marks a 47 percent premium over the $8.69 closing price Friday.

“This strategic acquisition enhances Broadcom’s position as one of the leading providers of enterprise storage connectivity solutions to OEM customers,” Broadcom CEO Hock Tan said in a press release. “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.”

The semiconductor market has been rapidly consolidating as chip makers look for ways to cope with slower growthQualcomm recently announced a deal to acquire rival NXP Semiconductors for roughly $37 billion; NXP itself acquired another semiconductor firm, Freescale Semiconductor Ltd., last year.

Indeed, Broadcom was acquired last year by Avago Technologies in a $37 billion deal, and the combined companies adopted the name Broadcom Limited.

Brocade CEO Lloyd Carney said the company had planned to move ahead with its strategy following the Ruckus acquisition and wasn’t looking to sell. But it determined that Broadcom’s offer was too good to pass up.

“In terms of our IP Networking business, due to competitive overlap with some of Broadcom’s most important customers, Broadcom will seek a buyer for the business,” Carney wrote on the company’s website.