November 2nd, 2016 by Adam Armstrong
Broadcom To Acquire Brocade For Roughly $6 Billion
Today Broadcom Limited announced that it has entered into a definitive agreement to acquire Brocade Communications Systems, Inc. The acquisition is set to go through in an all-cash transaction at the price of $12.75 per share or approximately $5.5 billion, plus $0.4 billion of net debt, for a total of $5.9 billion. Broadcom will use a combination of debt financing and cash available on its balance sheet to fund this acquisition.
A few things will happen upon closing of the transaction. Broadcom’s non-GAAP free cash flow and earnings per share is expected to be immediately accretive. According to the companies, Broadcom currently anticipates that Brocade’s FC SAN business will contribute approximately $900 million of pro forma non-GAAP EBITDA in its fiscal year 2018. Which means the shareholders should receive a 47% premium from the Brocade closing share price on Friday, October 28, 2016.
Other things that will happen after close, though not immediately, will be the expanding of Broadcom’s enterprise storage portfolio with the addition of Brocade’s FC SAN solutions. Broadcom will also be divesting Brocade’s IP Networking business. Brocade states that it will be helping Broadcom find a buyer for the business.
The board of directors of Brocade and the Executive Committee of the board of directors of Broadcom have unanimously approved the transaction. The transaction is expected to close in the second half of Broadcom’s fiscal year 2017. The closing of the transaction is not subject to any financing conditions, nor is it conditioned on the divestiture of Brocade’s IP Networking business.