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Why Did Brocade Agree to Acquire Ruckus Wireless?

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Apr. 5 2016, Updated 4:01 p.m. ET

Acquisition will complement Brocade’s enterprise networking portfolio

On April 4, 2016, Brocade (BRCD) announced that it entered into a definitive agreement to acquire Ruckus Wireless (RKUS) in a cash and stock transaction. The acquisition is expected to complement Brocade’s enterprise networking portfolio and will add Ruckus’s high growth wireless products to Brocade’s “market-leading” networking solutions.

The acquisition will also strengthen Brocade’s strategic presence in the broader service provider space with Ruckus’s leading position in this market. According to Brocade, the transaction is expected to be accretive to its non-GAAP (generally accepted accounting principles) earnings by fiscal 1Q17.

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Deal valued at $1.5 billion

Under the terms of the acquisition agreement, the stockholders of Ruckus will receive $6.45 in cash and 0.75 shares of Brocade common stock for each share of Ruckus. The transaction is valued at $1.5 billion and may fluctuate until the deal is closed. The transaction value is approximately $1.2 billion net of estimated cash acquired, and the cash portion of the acquisition will be funded through a combination of cash on hand and new bank term loan financing.

Brocade’s press release stated, “The acquisition will be conducted by means of an exchange offer for all of the outstanding shares of Ruckus. The completion of the exchange offer is subject to customary conditions, including reviews by U.S. and international antitrust regulators and the tender of a majority of the outstanding shares of Ruckus’ common stock.” The companies expect the acquisition to close in Brocade’s fiscal 3Q16.

As shown in the above chart, shares of Brocade fell 13.6% on April 4, 2016, whereas shares of Ruckus Wireless rose 32.4% on the acquisition news. Shares of peer companies EMC (EMC) and NetApp (NTAP) fell 0.26% and 1.3%, respectively, on April 4, 2016.

EMC accounts for 4% of the First Trust ISE Cloud Computing Index ETF (SKYY).

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