Brocade Communications (NASDAQ:BRCD) is up 22.3% and hanging right at 52-week high range after news that it's in talks to sell itself and getting close to the end of that process.
A deal could be announced this week, Bloomberg reports, and one of the interested parties is reportedly Broadcom (AVGO +0.7%), which could be interested in supplementing its switch-chip business with Brocade's networking gear. Broadcom CEO Hock Tan has said he's interested in acquisitions.
Such a deal might allow for better competition against much bigger rival Cisco Systems (CSCO +0.4%). "A purchase by Broadcom (Avago) would be a strategic move by Broadcom to vertically integrate in an IP switching and routing market that has increasingly moved to merchant silicon," notes Stifel analyst Aaron Rakers.
He's maintained a Hold rating and $10 price target (the boost today has put Brocade at $10.63). He doesn't know any inside information about activity around Brocade this week but notes that for years, talk has persisted that Brocade might sell itself to suitors like H-P (NYSE:HPQ), Oracle (NASDAQ:ORCL) or IBM (NYSE:IBM).
With current net debt (about $440M) and at $11/share, Brocade would come at about a $4.9B enterprise value, 7.3 times EBITDA, he says.
The company raised its dividend 24% in February, to $0.26/quarter; forward yield now is 3.28% -- still higher than Intel's (2.77%), Microsoft's (2.7%) and Apple's (1.99%).
Cisco's expected to keep generating free cash flow, and much of its cash on hand is overseas (only $6B held domestically). Moody's analyst Richard Lane expects the company will generate about $7B in free cash flow each year and "management will retain significant liquidity and financial flexibility."
And the company's move up the stack -- toward more software and services -- should keep pushing profit margin expansion, along with the company's job cuts.
Continuing its heady M&A pace, Cisco (CSCO +0.2%) has bought Synata, a developer of search technology declared (by Synata) to be "the easiest and fastest way to integrate, index, and analyze massive amounts of enterprise data." Terms are undisclosed.
Cisco plans to integrate Synata's technology with its Spark Web collaboration service - it competes against offerings from both established players such as Microsoft (Skype), and upstarts such as Slack and Atlassian. Spark was among the products covered by Cisco's alliance with Apple to create "a seamless experience" between iPhones and desk phones in environments using Cisco conferencing hardware/software.
Exec Rob Salvagno: "Synata’s technology allows users to search both on-premise and cloud-based applications simultaneously from one platform. Their search technology will also work within Cisco Spark’s unique approach to end-to-end encryption in the cloud, which makes them a great fit for our team ... Today’s acquisition builds on the success of other recent acquisitions in collaboration like Collaborate.com, Assemblage, Tropo, and Acano."
Cisco's collaboration product revenue rose 3% Y/Y in the January quarter to $1.02B. Synergy Research recently estimated Cisco Cisco had 16% of the collaboration market in Q4, good for first place. Microsoft was #2, and Avaya #3.
Cisco (CSCO -0.3%) is paying $320M in cash and assumed equity awards, plus retention-based incentives, to buy Leaba Semiconductor, an Israeli networking chipmaker that has been in stealth mode since its founding in 2014.
Leaba's site only describes the company as "a fabless semiconductor company providing innovative solutions for significant infrastructure challenges." Cisco merely says Leaba has "a team with a strong and successful track record of designing leading edge networking semiconductors that provide innovative solutions to address significant infrastructure challenges," and that the purchase will help accelerate Cisco's plans for its next-gen products. Leaba's CEO and CTO were previously co-founders of Dune Networks, a provider of Ethernet switch fabric chips that was sold to Broadcom for $178M in 2009.
Though also using off-the-shelf network processors (NPUs), Cisco continues heavily relying on internally-developed ASICs to power its switches and routers. In 2013, the company unveiled the nPower X1, which powers its CRS and NCS core router lines. Last year, EZchip (recently acquired by Mellanox) disclosed Cisco doesn't plan to use the company's NPUs in next-gen edge router line cards, as it does in current line cards.
News of the deal comes just a day after Cisco announced it's buying cloud app management software provider CliQr Technologies for $260M+, and a month after it announced a $1.4B+ deal to buy IoT service provider Jasper Technologies.
Still hungry to grow its software/services exposure via M&A, Cisco (CSCO +0.5%) is buying CliQr Technologies, a provider of software for orchestrating app deployment and management across data centers and public/private clouds, for $260M in cash and assumed equity awards, plus retention-based incentives. The deal is expected to close in FQ3 (the April quarter).
CliQr's platform lets users create a single profile for deploying an app across multiple environments and server types, optimizes app performance and ensures consistent policies across locations, and provides a common interface for managing cloud environments, apps, and users. Cisco notes CliQr's products are already integrated with its ACI SDN/network virtualization platform and its UCS server line, and plans to further integrate them with the company's data product lineup.
VMware, Red Hat, and IBM are among the other firms to have shown an interest in cloud orchestration. News of the deal comes eight months after Cisco announced it's buying cloud service management software firm Piston Cloud Computing. A month ago, the company announced it's spending $1.4B+ to buy major IoT service provider Jasper Technologies.
Jasper Technologies provides a platform for creating, managing, monetizing, and automating IoT services for Web-connected embedded devices. Cisco (NASDAQ:CSCO) is buying the company for $1.4B in cash and assumed equity awards, plus retention-based incentives.
Cisco: "Jasper is the industry's leading IoT service platform in terms of number of enterprises and service providers ... Jasper develops and provides a SaaS platform with a predictable, recurring revenue IoT business that manages and drives a wide range of connected devices and services for more than 3500 enterprises worldwide, working with 27 service provider groups globally."
The purchase comes 7 months after Cisco unveiled its IoT System, which aims to provide an end-to-end hardware, software, and services platform for IoT-related deployments. IBM, Microsoft, and Amazon are among the other major IT names to have shown a strong interest in IoT services.
In October, Cisco announced the purchase of ParStream, a startup providing a database for IoT data. The company has made a slew of acquisitions in recent years to grow its software/services exposure amid ongoing hardware pressures. FQ2 results arrive on Feb. 10.
Cisco (NASDAQ:CSCO) could make a bid for storage array vendor NetApp (NASDAQ:NTAP) and threat-prevention hardware/software provider FireEye (NASDAQ:FEYE) in 2016, thinks FBR's Dan Ives. Cisco/NetApp speculation has been around for a while. Meanwhile, Cisco has made several security acquisitions in recent years, and appears to be up for more, but has also launched products that compete with FireEye.
Ives also thinks IBM could bid for machine/log data analytics software leader Splunk (NASDAQ:SPLK) and business intelligence/data visualization software firm QLIK. With a $7.6B market cap and high multiples, Splunk would be a costlier acquisition than IBM's traditional fare.
HP Enterprise (NYSE:HPE), meanwhile, is seen as a potential suitor for both Qlik and enterprise cloud storage/file-sharing leader BOX. And Oracle (NYSE:ORCL) a potential buyer of cloud ERP, HR, and e-commerce software firm NetSuite (NYSE:N). Larry Ellison owns a large stake in NetSuite (more SMB-focused than Oracle), and the company both competes and partners with Oracle.
Microsoft (NASDAQ:MSFT), which has made plenty of acquisitions in the Satya Nadella era, is seen as a potential buyer of database security software and Web app firewall vendor Imperva (NYSE:IMPV), as well as of cloud vulnerability management and compliance software firm Qualys (NASDAQ:QLYS). Symantec (NASDAQ:SYMC), which has signaled it will make security acquisitions after the sale of its Veritas unit closes, is considered a possible acquirer of e-mail/compliance security software provider Proofpoint (NASDAQ:PFPT).
Yesterday: FBR sees improving cybersecurity spend, likes several stocks
Cisco (NASDAQ:CSCO) is buying Acano, a London-based provider of group collaboration, unified communications, and audio/video conferencing software, for $700M in cash (presumably offshore) and assumed equity awards, plus retention-based incentives. The deal is expected to close in the April quarter. (blog post)
Cisco: "Acano's hardware and software includes gateways, and video and audio bridging technology that allows customers to connect video systems from multiple vendors across both cloud and hybrid environments ... Today, less than 10 percent of the conference rooms in the world are connected via video. However, there is a massive market shift underway in collaboration -- customers want the ability to easily connect from anywhere, from dedicated hardware endpoints to sharing video on a mobile phone ... Acano's technology and expertise will enable us to accelerate our development in the key areas of interoperability and scalability."
Cisco's collaboration revenue (covers videoconferencing hardware, the WebEx and Jabber collaboration software lines, and other products) rose 17% Y/Y in the October quarter to $1.2B, with the help of a videoconferencing refresh. The company faces collaboration software competition both from established players such as Microsoft and Citrix, and from upstarts such as Google (Hangouts), LogMeIn (Join.me), and Slack. Slack recently raised funding at a $2.8B valuation.
New CEO Chuck Robbins hasn't been shy about making acquisitions. Other recent purchases include OpenDNS (DNS security software/services), Lancope (security analytics software), and MaintenanceNet (service contract management software)
Ericsson (NASDAQ:ERIC) has quashed a recent media report that claimed Cisco (NASDAQ:CSCO) was seeking to buy the Swedish networking giant, stating there haven't been any merger talks.
"We note that there are rumors in the market regarding an acquisition of Ericsson by Cisco possibly spurred by the recent announcement of a partnership between our two companies," Ericsson CEO Hans Vestberg said.
A Swedish media report stating Cisco (CSCO -6%) is looking to buy mobile infrastructure/services giant Ericsson (ERIC - unchanged) led the latter's shares to briefly rise as much as 9.6% before giving back their gains. Markets are evidently skeptical.
Worth noting: Cisco CEO Chuck Robbins just stated his company isn't looking to make large acquisitions. and is instead focusing on "small strategic" deals. Ericsson is currently worth $31B.
Cisco and Ericsson are four days removed from announcing a comprehensive technology/reseller partnership. Ericsson will offer Cisco's switches/routers to mobile carriers in tandem with its own mobile infrastructure hardware and network services, Cisco will pair Ericsson's OSS/BSS network management software with its offerings, and the companies will form a "joint initiative focused on SDN/NFV and network management and control."
Update: Cisco tells CNBC reports it's looking to buy Ericsson are "not true."
Cisco (CSCO -0.1%) is buying Lancope, a security analytics software firm that provides tools for analyzing network traffic, identifying and tracking apps, viewing global threat intelligence, and identifying the source of a security event. The company is paying $452.5M in cash and assumed equity awards, and will also provide retention incentives.
Cisco: "With Lancope, Cisco's portfolio of security solutions adds an additional capability of network behavior analytics that extends protection further into the network." Lancope's software complements Cisco's existing security appliance and software offerings, and fits with the company's strategy of embedding security features throughout its networking product line.
Also being acquired: ParStream, a German provider of a distributed analytics database for IoT-related data. Terms are undisclosed.
Cisco: "Using innovative compression and indexing capabilities, ParStream’s technology helps customers access data faster and at scale, rapidly analyzing and filtering billions of records and getting information to the business in near real-time. This acquisition complements Cisco’s current data and analytics portfolio, improving our ability to provide analytics at the edge of the network, where data is increasingly being generated and in huge volume."
The ParStream acquisition follows the June launch of Cisco's IoT System, which aims to deliver an end-to-end networking solution (featuring hardware, software, and services) for Web-connected embedded devices. CRN observes ParStream could compete with HP's (NYSE:HPQ) Vertica analytics database.
Thanks to VMware's (NYSE:VMW) 8.1% drop in regular trading, the official value of Dell's buyout offer for EMC ($24.05/share in cash + 0.11 shares of a VMware tracking stock) fell from $33.15/share to $32.00/share. However, that's still 13% above EMC's $28.35 closing price.
Part of the discount likely stems from expectations VMware tracking stock will trade at a discount to its regular shares, given the tracking stock will have no voting rights or access to dividends (should VMware begin paying one). Nonetheless, some M&A arb traders see a compelling opportunity, assuming the tracking stock trades at a moderate discount.
There's speculation another tech giant could bid for EMC during its go-shop period. But there haven't been any formal reports of buyout interest, and EMC's current price suggests markets are skeptical of a rival bid arriving. HP (NYSE:HPQ) used today's news to trash-talk EMC/Dell - "Two of our largest competitors are attempting a highly distracting, multi-year merger, just as we are launching two new, focused companies." - while Dell server/networking rival Cisco (NASDAQ:CSCO) affirmed its partnership with EMC.
Meanwhile, several analysts defended VMware as shares tumbled thanks to the EMC/Dell news and VMware's Q3 pre-announcement - revenue and EPS are expected to top estimates, but billings growth of 3% Y/Y fell short of expectations. Cowen's Gregg Moskowitz: "While we believe this deal certainly could have been better structured (i.e. there is no collar on VMW's stock), and the billings were disappointing, the selloff nonetheless looks clearly overdone, as we expect no meaningful impact to VMW's strategy or operations."
MKM's Kevin Buttigieg: "At the current intraday price of $71, VMW is 13x CY16 consensus EPS excluding net cash of $13/share, a level we think presents tremendous value, though likely requires patience given uncertainty around the Dell deal." On this morning's conference call, departing EMC CEO Joe Tucci suggested Dell is looking to up its VMware stake over time.
France's Technicolor (OTCQX:TCLRY) is buying the set-top box and cable modem business from Cisco Systems (NASDAQ:CSCO) for €550M (about $600M) in cash and stock, after many Cisco investors called for the company to get out of set-tops entirely despite billions invested.
About $450M of the deal is in cash and $150M in stock. The deal is expected to close in Q4 or the first quarter of next year, after regulator OKs.
Set-tops have been in decline, making for a drag on Cisco's video business. Google offloaded its own Motorola Home business to Arris Group for more than $2B last year.