If Broadcom does end up acquiring Brocade Communications, it will likely sell off Brocade’s IP networking division, Reuters is reporting. In addition to routers and switches, a big part of Brocade’s IP networking business derives from its $1.5 billion acquisition of Ruckus Wireless earlier this year.
Rumors of the potential deal between Brocade and Broadcom first surfaced yesterday. Brocade’s stock rose 6 percent to $11.24 this afternoon, nearing its 52-week high of $11.48.
According to unnamed sources who spoke with Reuters, if Broadcom succeeds in buying Brocade, it would keep Brocade’s Fibre Channel storage business, but it would divest its IP networking business.
A research note published yesterday from RBC Capital Markets analyst Amit Daryanani says of the possible deal, “While financial accretion isn’t questioned, it’s the strategic rationale that investors are struggling with.”
The key question from investors is: Why does Broadcom, a massive company with a market capitalization of $66.4 billion, want to become an equipment provider and compete with some of its key customers such as Cisco, and Arista?
But if Broadcom divested Brocade’s IP networking business, that concern would be eliminated.