Tuesday, October 3, 2017

Broadcom's acquisition of Brocade faces delay

Broadcom's pending acquisition of Brocade is facing a regulatory delay. The companies withdrew and re-filed their joint voluntary notice to the Committee on Foreign Investment in the United States (CFIUS), triggering a new 45-day investigation period. Brocade and Broadcom now anticipate the acquisition to be completed by November 30, 2017, subject to clearance from CFIUS.

Brocade now plans to directly sell its data center switching, routing and analytics business to Extreme Networks, instead of waiting for the Broadcom deal to first and then making the sale, as had been previously agreed. Brocade and Extreme Networks expect this deal to close this transaction prior to the closing of Broadcom's acquisition of Brocade.

"We are actively engaged with CFIUS and remain committed to Broadcom's proposed acquisition of Brocade," said Lloyd Carney, CEO of Brocade. "We continue to work diligently and cooperatively with Broadcom to close the transaction as soon as possible in a challenging and dynamic policy and regulatory environment. In the meantime, we are pleased to announce an agreement to divest our data center networking business to Extreme Networks, which we believe is in the best interest of our shareholders, customers, partners and the employees aligned with the business."

Broadcom to Acquire Brocade for Fibre Channel Business

Broadcom agreed to acquire Brocade Communications Systems for $12.75 per share in an all-cash transaction valued at approximately $5.5 billion, plus $0.4 billion of net debt.

Broadcom plans to keep Brocade's Fibre Channel storage area network (FC SAN) switching business and divest Brocade’s IP Networking business, consisting of wireless and campus networking, data center switching and routing, and software networking solutions.

Broadcom expects to fund the transaction with new debt financing and cash available on its balance sheet.

The companies said the deal is not subject to any financing conditions, nor is it conditioned on the divestiture of Brocade’s IP Networking business.

Broadcom said key reasons for the acquisition include the profitability margin for Brocade's FC SAN business, which currently comprises vast majority of Brocade’s non-GAAP operating profit.

Extreme to Acquire Brocade's Switching Business for $55 Million

Extreme Networks agreed to acquire Brocade Communications Systems' data center switching, routing, and analytics business from Broadcom following Broadcom's acquisition of Brocade. The deal is valued at $55 million in cash, consisting of $35 million at closing and $20 million in deferred payments, as well as additional potential performance based payments to Broadcom, to be paid over a five-year term. The sale is contingent on Broadcom closing its acquisition of Brocade, previously announced on November 2, 2016 and approved by Brocade shareholders on January 26, 2017. Broadcom presently expects to close the Brocade acquisition in its third fiscal quarter ending July 30, 2017.

Extreme expects the acquisition to be accretive to cash flow and earnings for its fiscal year 2018 and expects to generate over $230 million in annualized revenue from the acquired assets. The acquisition is expected to close within 60 days following the closing of Broadcom's acquisition of Brocade.

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