Broadcom's acquisition of Brocade held up by regulation

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Broadcom's acquisition of Brocade held up by regulation

Broadcom's US$5.9 billion blockbuster acquisition of Brocade Communications has hit a major hurdle that potentially could delay the purchase for at least a few more months.

The acquisition, which was first unveiled in November, was set to be completed on or before 1 August. However, the Committee on Foreign Investment in the United States (CFIUS) has halted the process with the potential of dissolving the deal altogether. The acquisition not only impacts Broadcom and Brocade - Extreme Networks has revealed plans to purchase certain assets of Brocade from Broadcom once the deal is closed.

The two companies discussed the acquisition proposal with the CFIUS on 17 July and agreed to withdraw and refile their notice in order to allow an additional 30-day review and discussion with the CFIUS, according to a Brocade 8-K filing with the US Securities and Exchange Commission. Another 45-day review could follow the 30-day review period.

The CFIUS is a national security agency committee that reviews the security implications of foreign investments in US companies or operations. Broadcom has headquarters in California, and in Singapore, with additional offices in China, Russia, India, Japan and Taiwan, to name a few.

Although Brocade and Broadcom say they have been and will continue to be actively engaged with the CFIUS during its review, there is still concern that the acquisition may not get approval, according to the filing.

"There can be no assurances, however, that CFIUS will ultimately agree that the parties may proceed with the proposed acquisition," said the filing.

Broadcom and Brocade did not respond to comment by press time.

Under the initial agreement terms between Brocade and Broadcom, if the acquisition had not been completed on or before 1 August, 2017, either company could terminate the deal. However, the companies elected to extend that date to 1 November, 2017. No other provisions were amended or waived in the agreement, according to the filing.

The closing of the acquisition remains subject to other conditions including the receipt of antitrust regulatory approval in China, which has not been granted yet. The companies have already obtained antitrust regulatory approval or clearance from every other country needed including the US, the European Union and Japan.

Both Broadcom and Brocade say they remain "fully committed" to the proposed acquisition and will "continue to work diligently and cooperatively" to close the deal, according to the filing. Broadcom's acquisition of Brocade is solely for the vendor's Fibre Channel networking products with plans of selling off other pieces of Brocade's business to separate vendors.

The companies are now expecting that the acquisition will be completed during its fourth fiscal quarter, which ends on 28 October.  At a stockholder meeting in January, the acquisition was approved by the Brocade holders of 99 percent of the shares.

Extreme Networks unveiled plans in March to acquire Brocade's networking business for US$55 million in a move to better compete against Cisco Systems and Hewlett Packard Enterprise. This deal is contingent on the Broadcom deal closing.

Extreme CEO Ed Meyercord told CRN USA in May that he expected to complete the deal in August. The company now says it will close its transaction with Broadcom within two to three business days of the completion of Broadcom-Brocade deal.

"As we march toward becoming the third largest end-to-end enterprise networking provider, we are confident our acquisition of Brocade's data center networking business will move forward," said Meyercord in a statement. "The delay will provide us with additional time to integrate Avaya operations and prepare for our business combination with Brocade. We are working to ensure a smooth transition for new and existing employees, customers and partners from both Avaya and Brocade."

In June, AT&T unveiled its plans to acquire Brocade's Vyatta Software Platform. Terms of the deal were not disclosed. On 7 July, the telecom giant completed the acquisition and hired dozens of Brocade employees mostly from California and the UK as part of the deal. AT&T says it expects to virtualise and software-control 75 percent of its network by 2020, according to a release.

This article originally appeared at crn.com

Copyright © 2017 The Channel Company, LLC. All rights reserved.
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