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Brocade, Broadcom Merger in Doubt

Iain Morris
7/19/2017
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Broadcom's proposed takeover of Brocade has been thrown into doubt after the companies said they were putting their plans on hold so that regulatory authorities have more time to review the deal.

In a filing with the US Securities and Exchange Commission, Brocade Communications Systems Inc. (Nasdaq: BRCD) said a joint voluntary notice about the deal would be withdrawn and then re-filed with the Committee on Foreign Investment in the US (CFIUS) following previous discussions with the government entity.

This will "allow more time for review and discussion with CFIUS in connection with the proposed acquisition," said Brocade. "Once CFIUS accepts the joint voluntary notice, it will commence a new 30-day review period, which may be followed by a 45-day investigation period."

"Brocade and Broadcom have been and will continue to be actively engaged with CFIUS during its review of the proposed acquisition," added Brocade. "There can be no assurances, however, that CFIUS will ultimately agree that the parties may proceed with the proposed acquisition."

Brocade did not indicate why authorities need more time to review the deal, but the nature of the hold-up suggests there is some concern about the proposed tie-up.

Chipmaker Broadcom Corp. (Nasdaq: BRCM) announced it would pay $5.9 billion for Brocade, a networking storage business, in November last year. (See Broadcom Buys Brocade for $5.9B, Will Ditch Ruckus & IP Biz.)

Earlier this month, however, the Federal Trade Commission was said to have expressed concern the takeover would give Broadcom a dominant position in the market for fiber channel switches.

Broadcom already supplies chips used in the fiber channel switches made by Cisco Systems Inc. (Nasdaq: CSCO), Brocade's chief rival, and its chips would be used in switches from Brocade following a takeover, giving competitors little room for maneuver.


For more data center-related coverage and insights, check out this dedicated content channel here on Light Reading.


But the delay affects other companies involved in transactions with Brocade, too.

After announcing the deal last November, Brocade said it would seek buyers for its data networking assets to avoid competing against some of Broadcom's own customers.

In February, Arris Group Inc. (Nasdaq: ARRS) emerged as the buyer of Brocade's Ruckus Wireless Inc. WiFi networks business, and in March Extreme Networks Inc. (Nasdaq: EXTR) said it would pay $55 million for Brocade's data center business. (See Is Ruckus Right for Arris? and Brocade's Other IP Assets Find a Home.)

But the latest regulatory developments also represent a setback for Extreme, which has said it expects to close its transaction about two or three days after Broadcom has acquired Brocade.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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mendyk
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mendyk,
User Rank: Light Sabre
7/21/2017 | 10:02:28 AM
Re: Doubt Regulators Will Object
The Candidate also ran on an anti-Wall Street platform. Now Goldman Sachs is even more firmly embedded in DC. GS and fellow travelers are in for a good couple of years.
Phil_Britt
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Phil_Britt,
User Rank: Light Sabre
7/20/2017 | 4:25:06 PM
Re: Doubt Regulators Will Object
Never thought Administration cared about this particular merger, but during the campaign Trump came out against a couple of mergers. Now, however, it seems its full steam ahead on business combinations.
chipmaker
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chipmaker,
User Rank: Light Beer
7/19/2017 | 11:03:43 PM
Re: Doubt Regulators Will Object
Dude--Really?  You think Trump cares at all about the Brocade/Broadcom deal?  lol  I think Broadcom might be getting cold feet and using the regulators as an excuse to back out of the deal.  That's just as likely.. Brocade's just not worth $5.9B... Broadcom overpaid and they have no idea how to run a hardware company.  There's also a prettier lady that Broadcom wants to date and her name is Toshiba!
Phil_Britt
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Phil_Britt,
User Rank: Light Sabre
7/19/2017 | 12:04:10 PM
Doubt Regulators Will Object
Though there was a lot of bluster during the campaign about media mergers, since taking office, the Adminstration seems to stay away from objecting to or blocking most business moves.
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