Network equipment maker Brocade Communications Systems Inc announced its intention to buy Ruckus Wireless In in a deal worth $1.5 billion, tapping rising demand for Wi-Fi access in venues like offices and stadiums.
Ruckus, which has the Marriott group and the Angel baseball stadium in L.A. as customers, makes controllers and access points to help firms provide hi-speed Internet.
Based on last week’s closing prices, the deal puts Ruckus at $14.43 per share, which equates to a premium of 44 percent.
Ruckus was trading at $13 on Monday morning while Brocade fell 15 percent to $9.04.
Net of the cash Ruckus has on hand, the deal is values at approximately $1.2 billion, the companies said.
Macquarie Research analyst Rajesh Ghai says the deal makes sense, as the companies offered complementary products and would give Brocade more ammunition to expand into the services industry, adding it was unlikely another bidder would emerge.
Stockholders in Ruckus will each receive $6.45 in cash and 0.75 share of Brocade common stock for every share owned. The cash side of the deal will be funded via cash on hand and a new loan, the companies said.
“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”, BTIG wrote in a note to clients.
Brocade, which is based on San Jose, raised its share buyback program by $800 million, taking the total left in the existing program to $1.7 billion. The firm said it expects the deal to add to its adjusted earnings by the first quarter of fiscal 2017.
Chief Executive Selina Lo will lead the Ruckus business, reporting to Brocade Chief Executive Lloyd Carney. Evercore was the firm’s financial adviser and Paul Hastings LLP was legal counsel. Morgan Stan