in a cash and stock transaction. The acquisition will complement Brocade’s enterprise networking portfolio, adding Ruckus’ higher-growth, wireless products to Brocade’s networking solutions. It will also significantly strengthen Brocade’s strategic presence in the broader service provider space, with Ruckus’ Wi-Fi position. Brocade expects the transaction to be accretive to its non-GAAP earnings by its first quarter of fiscal 2017. The Ruckus organisation will be led by current Ruckus CEO, Selina Lo, and report directly to Brocade CEO, Lloyd Carney.
Under the terms of the agreement, Ruckus stockholders will receive $6.45 in cash and 0.75 shares of Brocade common stock for each share of Ruckus common stock. Based on the closing price of Brocade’s stock on April 1, 2016, the transaction values Ruckus at a price of $14.43 per common share, or approximately $1.5 billion, and may fluctuate until close. Net of estimated cash acquired, the transaction value is approximately $1.2 billion.The cash portion of the purchase price will be funded through a combination of cash on hand and new bank term loan financing.
As companies move to digitize their business, they need an underlying network architecture that supports business agility. This New IP architecture enables the network to become a platform for innovation and for developing, delivering, and securing new applications. Wireless is a critical access technology and the combination of Brocade and Ruckus creates a new type of pure-play networking company, with solutions spanning from the heart of the data center to the wireless network edge. In addition, after close, the acquisition is expected to accelerate cross-selling activities into the respective companies’ partner and customer bases, opening up new revenue opportunities for the combined company across a variety of verticals, including large enterprises, K-12 and higher education, government, hospitality, and service providers.
Further, the acquisition will strengthen Brocade’s ability to pursue emerging market opportunities around 5G mobile services, Internet of Things (IoT), Smart Cities, OpenGtm technology for in-building wireless, and LTE/Wi-Fi convergence. Brocade and Ruckus believe that the integration of Wi-Fi and the use of shared access or lightly licensed spectrum are critical to meeting the ever-growing demand for coverage, capacity, and consistency required for next-generation mobile services. These elements are important in Brocade’s strategy to disrupt and enhance the way edge services are created and delivered.
"This strategic combination will position us to expand our addressable market and technology leadership with Ruckus’ fast-growing wireless LAN products, and supports our vision to deliver market-leading New IP solutions that enable the network to become a platform for innovation,” said Lloyd Carney, chief executive officer of Brocade. “History shows that focused, pure-play companies often innovate faster, are more agile, and deliver better value to their customers. With the rapidly evolving requirements of the digital transformation era, we are positioning ourselves to lead where technology is headed. We believe that combining our portfolios will provide significant benefits to our customers and will enable us to accelerate our growth and value creation."
"The combination of our two companies will create an exciting new thought leader in networking and significant opportunities for our stakeholders to participate in the combined company's future growth potential,” said Selina Lo, president and CEO of Ruckus. "We operate in adjacent segments of the larger networking market with a number of common customers for our complementary products, and have a successful track record of working together. We are excited for the opportunity to join the Brocade team and to jointly deliver innovative, value-added solutions to our enterprise and service provider customers.”
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 transaction, which has been approved by both companies’ boards of directors, to close in Brocade’s third fiscal quarter of 2016.
Shane Buckley, CEO of wireless network provider Xirrus (and a competitor to Ruckus) commented on the deal, "This move by Brocade confirms our view that enterprise infrastructure vendors recognize the value of developing wireless capabilities as their customers migrate to mobile and embrace BYOD. Brocade’s acquisition of Ruckus complements its continued effort to diversify beyond data center networking into campus networks, an initiative started years ago with the acquisition of Foundry. The challenge is that Ruckus has had a rich history in the service provider market – carriers and hospitality MSPs – but is not as well known in the enterprise campus networking space.
"This deal also confirms a long-standing trend in the communication tech sectors where diversified vendors tend to make material M&A moves on sizeable targets with which they had an existing commercial partnership. This not only lowers the business combination risks, but it also provides buyer with visibility of potential revenue and cost synergies.”