Broadcom to Buy Brocade for $5.9 Billion

Broadcom, whose chips are used in Apple’s iPhone and TV set-top boxes, agreed to buy Brocade Communications Systems for $5.9 billion including debt to capitalize on booming demand for cloud computing and the data centers that deliver it, according to Bloomberg. Broadcom is acquiring Brocade for technology that links computer-storage systems and allows the fast transfer of data, the company said in a statement today. It will sell off Brocade’s other networking-equipment businesses to avoid competing with its existing customers.

Hock Tan, Broadcom’s chief executive officer, has built one of the world’s biggest chipmakers in the past two years through a string of acquisitions, including the $37 billion deal with  Avago Technologies Ltd. in 2015 that created the current company. He’s been at the forefront of a record run of chip-industry mergers as semiconductor makers race to keep up with rising costs and a shrinking list of customers that are demanding more from their component suppliers. Broadcom will pay $12.75 a share for Brocade in an all-cash transaction valued at about $5.5 billion, plus $400 million in net debt. That’s a 47 percent premium to Brocade’s closing share price on Friday, before Bloomberg reported the deal was in the works.

After the transaction closes, Broadcom said it plans to divest Brocade’s internet gear business, including Ruckus Wireless, which it acquired earlier this year in a deal valued at $1.5 billion. The larger company will be able to quickly turn its latest acquisition into increasing profits, according to Cody Acree, an analyst at Drexel Hamilton. Still, Broadcom might have been better off looking elsewhere for rapid revenue growth, he said. “You’re buying into a market that’s flat to down, and most think it’s down,” he said.

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