Broadcom Ltd (NASDAQ:AVGO) and Brocade Communications Systems, Inc. (NASDAQ:BRCD) announced that they have entered into a definitive agreement under which Broadcom will acquire Brocade, a leader in Fibre Channel storage area network (“FC SAN”) switching and IP networking, for$12.75 per share in an all-cash transaction valued at approximately $5.5 billion, plus $0.4 billion of net debt. Broadcom expects to fund the transaction with new debt financing and cash available on its balance sheet. Broadcom, with the support of Brocade, plans to divest Brocade’s IP Networking business, consisting of wireless and campus networking, data center switching and routing, and software networking solutions.
“This strategic acquisition enhances Broadcom’s position as one of the leading providers of enterprise storage connectivity solutions to OEM customers,” stated Hock Tan, President and Chief Executive Officer of Broadcom. “With deep expertise in mission-critical storage networking, Brocade increases our ability to address the evolving needs of our OEM customers. In addition, 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.”
“This transaction represents significant value for our shareholders, who will receive a 47% premium from the Brocade closing share price on Friday, October 28, 2016, and creates new opportunities for our customers and partners,” said Lloyd Carney, Chief Executive Officer of Brocade. “Our best-in-class FC SAN solutions will help Broadcom create one of the industry’s broadest portfolios for enterprise storage. 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.”
Upon closing, the transaction is expected to be immediately accretive to Broadcom’s non-GAAP free cash flow and earnings per share.Broadcom currently anticipates that Brocade’s FC SAN business will contribute approximately $900 million of pro forma non-GAAP EBITDA in its fiscal year 2018.
The board of directors of Brocade and the Executive Committee of the board of directors of Broadcom have unanimously approved the transaction, which is presently expected to close in the second half of Broadcom’s fiscal year 2017 which commenced on October 31, 2016, subject to regulatory approvals in various jurisdictions, customary closing conditions as well as the approval of Brocade’s stockholders. The closing of the transaction is not subject to any financing conditions, nor is it conditioned on the divestiture of Brocade’s IP Networking business. (Original Source)
Shares of Broadcom closed yesterday at $168.8, down $1.48 or -0.87%. AVGO has a 1-year high of $179.42 and a 1-year low of $114.25. The stock’s 50-day moving average is $170.54 and its 200-day moving average is $160.69.
On the ratings front, Broadcom has been the subject of a number of recent research reports. In a report issued on October 25, Canaccord analyst Michael Walkley reiterated a Buy rating on AVGO, with a price target of $215, which represents a potential upside of 27% from where the stock is currently trading. Separately, on October 20, Brean Capital’s Mike Burton reiterated a Buy rating on the stock.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Michael Walkley and Mike Burton have a yearly average return of 12.9% and 9.9% respectively. Walkley has a success rate of 57% and is ranked #31 out of 4173 analysts, while Burton has a success rate of 66% and is ranked #120.
The street is mostly Bullish on AVGO stock. Out of 27 analysts who cover the stock, 26 suggest a Buy rating and one recommends to Hold the stock. The 12-month average price target assigned to the stock is $201.09, which represents a potential upside of 19% from where the stock is currently trading.
Broadcom Ltd. designs, develops and supplier of a broad range of analog and digital semiconductor connectivity solutions. It serves four primary end markets: wired infrastructure, wireless communications, enterprise storage and industrial & other. The company product’s includes data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems, and displays.