Technology

Brocade Makes Wi-Fi Play With Ruckus Deal

The $1.2 billion takeover would combine two companies that compete with wireless networking giant Cisco Systems.
Katie Kuehner-HebertApril 4, 2016

Network gear maker Brocade Communications Systems said Monday it would buy Ruckus Wireless for about $1.2 billion, giving it access to the growing wireless networking market.

The two companies are both rivals of networking giant Cisco Systems, with Ruckus specializing in hardware for Wi-Fi networks at stadiums and other big locations.

Brocade was originally known for networking hardware used in data storage applications, but has moved into other networking segments, including routers and switches that compete with Cisco’s products.

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Brocade’s offer values Ruckus at $14.43 a share, a 40% premium over the closing price on Friday. The stock closed Monday at $13.24, up more than 32%, while Brocade shares fell more than 13% to close at $9.19.

“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,” Brocade CEO Lloyd Carney said in a news release.

But some analysts believe that there could be competing bids for Ruckus from wireless equipment vendors such as Nokia or Ericsson. “The reaction of Brocade’s stock, and their decision to offer a high mix of stock in this transaction despite clearly having enough cash for the deal, opens up the door for a competitive bidder,” Walt Piecyk of BTIG wrote in a research note.

The deal calls for Ruckus stockholders to receive $6.45 in cash and 0.75 shares of Brocade for each share of Ruckus.

Both Cisco and Hewlett-Packard have recently expanded into wireless networking by acquiring Meraki Inc. and Aruba Networks, respectively.

Carney told The Wall Street Journal that those two deals — and the prospect of competing against companies with expanded product lines — helped prompt the decision to buy Ruckus.

“Brocade/Ruckus are betting their combined sales/marketing and R&D clout will help them better compete against Cisco, that cost synergies will help them compete more effectively on price, and that offering a more expansive product line will help them land more large deals,” Seeking Alpha said.

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