Broadcom to swallow Brocade then spit out networking arm

$5.9bn deal comes less than six months after Brocade acquired wireless vendor Ruckus

Semiconductor vendor Broadcom is acquiring storage vendor Brocade but plans to divest its networking arm after the $5.9bn (£4.8bn) deal closes.

The duo, which are both listed on the NASDAQ, this morning confirmed market chatter that they have entered into a definitive agreement to join forces.

The all-cash transaction values Fibre Channel SAN outfit Brocade at about $5.5bn, plus $0.4bn of net debt.

But the plan is to divest Brocade's IP networking business, which is based on its 2008 acquisition of Foundry Networks and recent wireless networking purchase Ruckus Wireless.

"This strategic acquisition enhances Broadcom's position as one of the leading providers of enterprise storage connectivity solutions to OEM customers," said Broadcom CEO Hock Tan.

"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."

Bolstered by its May acquisition of Ruckus, Brocade saw revenues rise by seven per cent year on year to $591m in its Q3 ending 30 July. SAN product revenues, however, fell nine per cent to $282m.

Broadcom said it expects the deal to add about $900m of pro-forma non-GAAP EBITDA in its fiscal 2017 and Brocade CEO Lloyd Carney also argued that the deal makes sense for his firm.

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