Chipmaker Broadcom Ltd said on Wednesday it would buy network gear maker Brocade Communications Systems Inc for $5.5 billion to expand its fiber channel and data storage businesses, the latest in a flurry of chip sector deals.
Singapore-based Broadcom, formerly Avago Technologies, is known for its connectivity chips while California-based Brocade makes networking hardware, software and storage products, reports Reuters.
Broadcom said it planned to integrate Brocade’s fiber channel storage networking products used in data centers and sell the company’s IP networking business.
“We believe the deal is highly complementary to Broadcom’s existing enterprise storage offerings and boosts its exposure to the high growth data center market,” CFRA Research Angelo Zino said.
The $12.75 per share offer represents a premium of 46.7 percent to Brocade’s close on Friday. Brocade’s shares were trading up 9 percent at $12.25, while Broadcom’s stock rose 1.5 percent to $171.41.
Up to Tuesday’s close, Brocade’s shares had gained nearly 30 percent since Bloomberg reported on Monday that the company was in talks to sell itself.
The chip industry has been undergoing rapid consolidation as companies try to capture market share, much of it related to connected devices and cars, and Avago/Broadcom has been one of the sector’s most prolific acquirers.
Since taking over the top job at Avago a decade ago, Chief Executive Hock Tan has turned around a small chipmaker into a giant with a market capitalization of $67 billion.
In the biggest chip deal ever, smartphone chipmaker Qualcomm Inc agreed last week to buy NXP Semiconductors NV for about $38 billion, making it the leading supplier to the fast-growing automotive chips market.
The Qualcomm-NXP deal topped Avago’s $37 billion acquisition of Broadcom Corp last year that formed Broadcom Ltd. Broadcom’s top customers include Cisco Systems Inc, Hewlett Packard Enterprise and Intel Corp.
Broadcom will sell Brocade’s IP Networking business due to competitive overlap with some of its most important customers, Brocade Chief Executive Lloyd Carney said in a blog post.
Brocade’s IP networking business consists of wireless networking, data center switching and software networking solutions.
“I don’t think there will be a lack in buyers for the IP business,” Drexel Hamilton analyst Cody Acree told Reuters, adding that companies such as Cisco, Hewlett Packard Enterprise and some Chinese firms are trying to make headway in the space.
A big part of Brocade’s IP networking business that Broadcom plans to divest was acquired as part of Brocade’s $1.5 billion acquisition of Ruckus Wireless earlier this year. The unit generated $209 million in product revenue in the third quarter.
The IP networking business makes controllers and access points that help businesses offer high-speed internet to their customers.
