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By | Chris Mellor 4th April 2016 14:40

Brocade stirs up a Ruckus, swallows wireless kit maker for $1.5bn

Storage and Ethernet networker rides on enterprise horse

Brocade is buying Ruckus Wireless for cash and shares, valuing Ruckus at around $1.5bn, and giving it entry to the growing enterprise wireless networking market.

The deal has been approved by both companies’ boards of directors. Ruckus stockholders will get $6.45 in cash and 0.75 shares of Brocade common stock for each share of Ruckus common stock.

Net of estimated cash acquired in the deal, Brocade will actually pay about $1.2bn for the mobile internet infrastructure hardware provider. That will be part-funded through existing cash and a bank term loan.

Ruckus was founded in 2004 by William Kish, currently Cogniac Corp CEO, and Victor Shtrom, Ruckus’ chief wireless architect. It went public in 2012 at $15/share, with the shares currently trading at $13.06.

It says the combined company is expected to be no. 1 in storage area networking, no. 1 in service provider Wi-Fi, no. 2 in data centre networking, no. 3 in enterprise wireless LAN, and no. 3 in enterprise edge networking in the US and EMEA.

Ruckus’ wireless LAN products have a higher growth rate than Brocade’s networking ones, with Brocade saying Ruckus has a market-leading Wi-Fi position.

In February Ruckus, with 940 employees, reported final 2015 quarter revenues of $100.1m, up 16.6 per cent year-on-year, with a profit of $2.8m, slightly down the year-ago quarter’s $2.9m.

Full 2015 year revenue was $373.4m, 14.2 per cent more than the 2014 figure. with profits of 4.7m, 42.7 per cent down on 2014’s $8.2m profit.

So Ruckus’ revenues are growing but it is challenged profit-wise.

Brocade says it will chase emerging market opportunities around 5G mobile services, Internet of Things (IoT), Smart Cities, OpenG technology for in-building wireless, and LTE/Wi-Fi convergence. It has, it says, a strategy to disrupt and enhance the way edge services are created and delivered. The Ruckus buy means it can offer products from the data centre network core out to the wireless edge, and there will be excellent cross selling opportunities into the existing Brocade and Ruckus customer bases.

Current Ruckus CEO Selina Lo stays in charge and will report to Brocade CEO Lloyd Carney. Her canned quote was... well, you judge: “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.”

So her market-babble has Brocade paying $1.2bn to become an exciting new thought leader. Fire the PR-speak droids who came up with that guff at once.

More realistically, she said: "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.“

So now they can work together even more, and make more dough.

That might not please Juniper Networks, which has a deal to integrate Ruckus’ products into its Ethernet switch products.

It looks to be a good purchase by Brocade, with back-office cost-savings possible and a now stronger entry to a new market with a sturdy player on the team.

The companies expect the transaction to close in Brocade’s third fiscal 2016 quarter. Brocade has increased its stock repurchase authorisation by $800m, to facilitate the repurchase of all shares issued in conjunction with this Ruckus acquisition. ®

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