A Broadcom (AVGO) Takeover of Brocade (BRCD) Would be 5-10% Accretive - RBC
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RBC Capital analyst Amit Daryanani weighed in on reports Broadcom Limited (NASDAQ: AVGO) could bid for Brocade Communications (NASDAQ: BRCD). Daryanani said the deal fits AVGO M&A Strategy and would be 5-10% accretive.
Daryanani commented, "There has been recent discussion (Bloomberg News, unsubstantiated) around AVGO making a bid for BRCD, we think the acquisition would be fairly logical and would fit AVGO’s historical M&A practice of acquiring companies that are 1) playing in markets with little competition (FC business is concentrated at CSCO & BRCD, Campus wifi is concentrated between CSCO, Aruba & BRCD), 2) High gross-margin asset – BRCD runs at mid to high 60% gross-margins (guided Oct-qtr for `67%) and 3) inefficient OPEX structure – BRCD has sustained low to mid 20% Op-margins for the last several years (we would think AVGO could have this at 40%+ given their historical execution). Net/net – We think assuming a 20% premium, and AVGO is able to operate BRCD assets at close to 40% Op-margins the deal would be 5-7% accretive and would fit into the narrative of doing smaller tuck-in deals."
The firm maintained a Top Pick rating and price target of $190 on AVGO.
Shares of Broadcom Limited closed at $169.35 yesterday.
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