Broadcom takes over network equipment maker Brocade in $5.5 billion deal

Broadcom will acquire the firm's fiber technologies -- and debt to boot.

Broadcom has agreed to purchase Brocade in a deal worth $5.5 billion which brings together Broadcom's chips and Brocade's networking technologies.

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Broadcom, a manufacturer of both analog and digital semiconductors co-headquarted in San Jose, Calif., and Singapore, announced the buyout on November 2.

The all-cash transaction will be made for roughly $5.5 billion, for $12.75 per share. In addition, Broadcom will be taking on $0.4 billion in net debt from Brocade.

As part of the deal, Brocade shareholders will receive a 47 percent premium on their investment, based on the closing shares of Friday, October 28.

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

"With deep expertise in mission-critical storage networking, Brocade increases our ability to address the evolving needs of our OEM customers," Tan added. "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."

Once the acquisition has closed in Q2 2017, the companies plan to work together to find a buyer for Brocade's IP Networking business, which includes wireless networking, data center switches, data center routing, and software networking.

Broadcom says upon closing, the acquisition will add value to the company's cash flow and earnings per share. It is also expected that the sale of Brocade's FC SAN business will add roughly $900 million to financial reserves.

At the time of writing, Brocade shares have jumped six percent to $11.24 per share.

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