Merger Arbitrage Blog

Broadcom Brocade Merger Moving Forward

download download (1)

First, the bad news… The Broadcom/Brocade merger deal completion has been delayed again as the investigations at CFIUS did not complete in time. 

Now lets discuss the positives. 

  1. The parties had agreed to extend the merger deadline past 1st Nov 2017.  They now anticipate the merger to be completed by 30th Nov 2017. Broadcom is very committed to this transaction. During Broadcom's Q4 2016 earnings call which was shortly after the brocade merger had been announced, Broadcom's CEO Hock Tan talked about the benefits of the deal when he said that the merger will accelerate Broadcom's margin expansion from 40% to 45%. On Q1 2017 earnings call, he said that Brocade's fiber channel business is their key focus which will generate $900 million EBITDA. For Q3 2017, Hock Tan talked about Broadcom's 19 product lines and that Brocade's FC business will add a 20th. Broadcom's strategy is to add product lines that will dominate their respective markets and clearly with Brocade's 70% share in the FC market, it will add to Broadcom's dominance. 
  2. CFIUS approval is the remaining issue left and the merger parties had filed to go directly to the 45 days investigation phase instead of the usual 30 days review + 45 days investigation. This step will save some time to enable the investigation to complete by 30th Nov 2017. I do not know the exact reasons for the delay but I suspect that CFIUS did not have enough time to complete the investigation due to staff shortage and not with issues with the merger. Broadcom had already signed an agreement with Hitachi to divest some of Brocade's government contracts to migitate CFIUS's concerns. Broadcom seemed confident to go to directly to investigation phase, suggesting that the discussions with CFIUS should be in the final phases and close to agreement. I think CFIUS approval will be granted soon rather than waiting until the full 45 days. 

Brocade's share price had rose from previous lows of around $11.60 to $12.16 as of yesterday. The news is positive and I will add more to my position as I am more confident of the deal after yesterday's news.

Updated: October 4, 2017 — 9:23 am

1 Comment

Add a Comment

Leave a Reply

Your email address will not be published. © 2016 Frontier Theme