Brocade Closed The Ruckus Acquisition; Now What?

On May 27, Brocade Communications Systems, Inc. BRCD announced that it had completed the acquisition of Ruckus Wireless Inc RKUS.

Citi’s Stanley Kovler maintained a Neutral rating on the company, with a price target of $8.50.

Deal Price

Brocade Communications paid $6.45 in cash and 0.75 Brocade shares for each share of Ruckus Wireless. The total value of the deal was $12.90, with an EV of $1.06 billion.

“Ruckus adds a complementary WLAN platform to Brocade’s campus switches, and could drive sales synergies 6-12 months after close coming from the enterprise, federal, and public markets,” Kovler mentioned.

Accretion

The analyst pointed out that while the deal was not “transformative,” it would offset some of the incremental weakness being witnessed by Brocade Communications in SAN and IP Networking, including Routing.

Based on the accretion guidance for FY17, provided earlier by Brocade Communications, Kovler expects Ruckus Wireless to add $0.10 to the former company’s standalone EPS of $0.93, bringing the total pro-forma EPS for FY17 to $1.04.

“We assumed limited sales synergies for Brocade’s campus switching business from the addition of RKUS WLAN and virtually no cost synergies between the two companies, both of which could theoretically provide upside once management is able to provide more detailed FY17 guidance,” Kovler stated.

Accordingly, the FY16 and FY17 standalone EPS estimates have been raised.