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Broadcom-Brocade deal delayed, with ‘no assurances’

The $5.9 billion Broadcom-Brocade acquisition has been delayed 30 days, which may turn into a 75-day delay. That’s if the deal happens at all.

SAN switching vendor Brocade Tuesday evening said the companies have re-filed for a 30-day review by the Committee on Foreign Investment in the United States (CFIUS). Another 45-day review may follow that 30-day period. Brocade said the vendors withdrew their original notices to CFIUS under the Defense Production Act of 1950 after discussions with CFIUS.

CFIUS reviews national security implications of transactions that could hand control of a U.S. business to a foreign person. Broadcom has headquarters in Irvine, California, and Singapore.

“Brocade and Broadcom remain fully committed to the proposed acquisition and will continue to work diligently and cooperatively to close the proposed acquisition,” Brocade said in a filing with the United States Securities and Exchange Commission (SEC).

The filing also states: “There can be no assurances, however, that CFIUS will ultimately agree that the parties may proceed with the proposed acquisition.”

Semiconductor conductor Broadcom agreed to buy Fibre Channel (FC) and Ethernet switching vendor Brocade in November 2016. Back then, Broadcom executives said they did not expect the deal to close before the middle of 2017. They knew they were in for a long slog to complete the international deal. And CFIUS is not the final hurdle. While the Broadcom-Brocade deal has received regulatory clearance in the U.S, European Union and Japan, the vendors still await antitrust approval in China.

Brocade and Cisco are the only FC switching vendors remaining.

Brocade said in its SEC finding Tuesday that it expects the deal to close before Oct. 28. Either side can terminate the deal if it fails to close by Nov. 1.

The Broadcom-Brocade deal directly involves other networking vendors. Because Broadcom only wants Brocade’s Fibre Channel networking products, it has sold off other pieces of Brocade’s business. Arris agreed to buy Brocade’s Ruckus Wireless and ICX Switch business for $800 million, and Extreme Networks agreed to purchase Brocade’s Ethernet switch and router business for $55 million. Those deals are contingent on the Broadcom-Brocade deal closing.

Pending Broadcom-Brocade deal hurting FC switch sales?

Brocade’s sales have taken a hit while Broadcom waits to close it out, especially on the FC end of the business. Its revenue of $581 million for the quarter that ended Jan. 28 dropped 12% year-over year, and its Fibre Channel director and switches sales declined 20%. Brocade’s $553 million in revenue for the quarter ending April 29 fell 5% year-over-year, with FC director sales down 6% and embedded switches falling 12%.

After both of the last two quarters, Brocade blamed poor SAN switching sales on “competition from alternative storage networking technologies and architectures, and customer uncertainty surrounding the pending acquisition of Brocade by Broadcom.”

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