Broadcom formally confirmed this morning that it is set to acquire networking vendor Brocade. Speculation about a potential deal had been rumored for nearly a week. The deal values Brocade at $5.9 billion, including $5.5 billion in cash and $400 million in debt.
Under the terms of the deal Broadcom will pay $12.75 per Brocade share, which is a 47 percent premium over Brocade's closing price on October 28.
While Brocade is well known in the industry for both its storage area networking (SAN) as well as IP networking technologies, Broadcom is primarily interested in the storage component. As part of the acquisition agreement, Broadcom has already stated that it plans to divest the IP networking business from Brocade. Brocade itself acquired the IP Networking business in 2008 with the $3 billion acquisition of networking vendor Foundry Networks.
"Our best-in-class FC SAN solutions will help Broadcom create one of the industry’s broadest portfolios for enterprise storage," Brocade CEO Lloyd Carney Brocade said in a statement. "We will work with Broadcom as it seeks to find a buyer for our IP Networking business, which includes a full portfolio of open, hardware and software-based solutions spanning the core of the data center to the network edge."
As to why Broadcom isn't interested in holding on to Brocade's IP networking assets, it has to do with competitive overlap. Broadcom supplies silicon to many networking vendors and there is a potential risk that if it owns its own networking company that business could be jeopardized.
The timing of the deal for Brocade is somewhat odd given that the company recently completed an acquisition of Ruckus Wireless for $1.5 billion to grow wireless networking capabilities.
"Having just completed the Ruckus acquisition, we were confident in our strategy, our team and our path forward," Carney wrote in a blog post. "We were not looking to sell the company. However, when Broadcom approached us with a compelling offer, we had an obligation to consider that offer, along with other alternative opportunities."
Sean Michael Kerner is a senior editor at Enterprise Networking Planet and InternetNews.com. Follow him on Twitter @TechJournalist