Chip maker Broadcom to Buy Brocade for $5.5 Billion

Chip maker Broadcom Ltd. said on Wednesday that it agreed to buy network-equipment firm Brocade Communications Systems Inc. for $5.5 billion, expanding its storage networking offerings amid slowing smartphone sales world-wide.

Under the deal's terms, Broadcom will pay $12.75 a share for Brocade, a 47% premium to where Brocade shares closed on Friday, before news outlets reported on talks of a deal.

Shares of Brocade rose 8.3% to $12.16 in premarket trading as Broadcom's stock was unchanged from $168.80 as of Tuesday's close.

Broadcom chips perform tasks such as filtering signal interference common in phones that operate on several spectrum bands.

Hock Tan, Broadcom's chief executive, said the tie-up would help the company "address the evolving needs" of its customers, such as Apple Inc., which uses Broadcom's chips in the iPhone. In its September quarter, Apple said it sold 45.5 million iPhones, 2.5 million fewer than a year earlier.

Broadcom said it plans to divest Brocade's IP networking business, including Ruckus Wireless, which Brocade agreed to buy in April for $1.2 billion.

The deal with Brocade, subject to regulatory approval, is seen as closing in the second half of Broadcom's current year, which began on Oct 31.

Broadcom was formed in February with the completion of a $37 billion deal that joined Avago Technologies Ltd. with Broadcom Corp., at the time the biggest chip deal ever.

Write to Joshua Jamerson at [e-mail]

(END) Dow Jones Newswires

November 02, 2016 08:45 ET (12:45 GMT)

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