Cavium to Acquire QLogic

Highlights

• Opportunity to drive significant growth at scale in data center and storage markets
• Substantial customer and revenue diversification
• Transaction enterprise value of $1 billion
• $45 million of identified annualized cost synergies to be realized by the end of 2017
• $0.60 to $0.70 accretive to Cavium’s CY 2017 non-GAAP EPS

Cavium, Inc., provider of semiconductor products that enable intelligent processing for enterprise, data center, cloud, wired and wireless networking, and QLogic Corp., supplier of high performance networking infrastructure solutions, have entered into a definitive agreement for Cavium to acquire all of the outstanding QLogic common stock for approximately $15.50 per share, comprised of $11.00 per share in cash and 0.098 of a share of Cavium common stock for each share of QLogic common stock (valued at approximately $4.50 based on the volume weighted average Cavium trading price for the three trading days beginning June 10, 2016), through an exchange offer.

The transaction values QLogic at approximately $1.36 billion in equity value, inclusive of approximately $355 million of cash on QLogic’s balance sheet, and has been unanimously approved by the boards of directors of both companies.

The acquisition provides:

• Opportunity to drive growth at scale in data center and storage markets: QLogic’s portfolio of advanced connectivity and storage solutions is complementary to Cavium’s portfolio of networking, compute, and security solutions. The combination enables Cavium to offer a complete end-to-end offering to customers in enterprise, cloud, data center, storage, telco and networking markets. QLogic adds an incremental $2+ billion market opportunity for Cavium.
• Substantial customer and revenue diversification: The combined customer base includes market leading OEMs and end-customers across a set of end markets that diversifies Cavium’s revenue and presents an opportunity to accelerate further growth.
• $0.60 to $0.70 of accretion to Cavium’s CY 2017 non-GAAP EPS: The combined company will have nearly $900 million in revenue, with profitability and cash flow generation. There are $45 million of identified annualized cost synergies across COGS and operating expenses expected to be realized by the end of 2017. The transaction is expected to create significant value for the shareholders of both companies.

“Today’s acquisition of QLogic is highly complementary and strategic to Cavium and it creates a diversified pure-play infrastructure semiconductor leader,” stated Syed Ali, president and CEO, Cavium. “QLogic’s industry leading products extend our market position in data center, cloud and storage markets, and further diversifies our revenue and customer base. In addition to the compelling strategic benefits, the manufacturing, sales and operating synergies will create significant value for our shareholders.”

“QLogic with Cavium is a winning combination for customers and employees and is financially compelling for QLogic shareholders,” said Christine King, executive chairman, QLogic. “The scale of operations of a nearly $1 billion revenue business will allow the combined company to deliver better solutions for customers and create more career opportunities for employees. Shareholders will benefit from both the immediate premium, as well as the opportunity to participate in the long-term value creation from the combined company’s strong growth prospects.”

The transaction will be funded with a combination of $220 million balance sheet cash, $750 million of committed financing, which includes $650 million of term loan and $100 million of short-term bridge debt, and $400 million in new Cavium equity.

Under the terms of the definitive merger agreement, a wholly-owned subsidiary of Cavium will commence an exchange offer to acquire all of the outstanding shares of QLogic common stock for $11.00 in cash and 0.098 of a share of Cavium common stock (approximately $4.50 per share based on the volume weighted average Cavium trading price for the three trading days beginning June 10, 2016) for each share of QLogic common stock tendered in the exchange offer. Upon satisfaction of the conditions to the exchange offer, and after the shares tendered in the exchange offer are accepted for payment, the agreement provides for the parties to effect, as promptly as practicable, a merger, which would not require a vote of QLogic’s stockholders, and which would result in each share of QLogic common stock not tendered in the exchange offer being converted into the right to receive $11.00 in cash and 0.098 of a share of Cavium common stock. The transaction is expected to close in the third quarter of calendar year 2016 pending customary closing conditions, including the tender into the exchange offer by QLogic stockholders of shares representing at least a majority of the outstanding shares of QLogic common stock, and the receipt of relevant regulatory approvals, including the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act.

J.P. Morgan acted as exclusive financial adviser and provided a financing commitment to Cavium; Skadden, Arps, Slate, Meagher & Flom LLP acted as Cavium’s legal counsel. Qatalyst Partners acted as exclusive financial adviser to QLogic and O’Melveny & Myers LLP acted as QLogic’s legal counsel.

Read also:
QLogic: Fiscal 4Q16 Financial Results
Revenue down 11% for quarter and 12% for year
2016.05.06 | Press Release | [with our comments]
QLogic and Cavium Collaborate
To deliver accelerated performance for enterprise and cloud storage applications
2015.05.21 | Press Release

To read this article from EETimes, click on:
Cavium Buys QLogic for $1B
Deal expands vendor of data center chips
Cavium Inc. will take on Broadcom, Intel and Mellanox in storage and networking with its billion-dollar acquisition of QLogic Corp. The deal teams one of the semiconductor’s fastest growing companies with one just starting to emerge from a decline.