Cavium diversifies with QLogic acquisition

Cavium, Inc. (NASDAQ:CAVM) will expand beyond its semiconductor roots through an agreement to purchase QLogic Corp. (NASDAQ:QLGC). The communications IC company will pay $1.36 billion in cash and stock for QLogic, which offers ASICs, Fibre Channel switches, and adapters for a variety of storage applications.

The acquisition agreement calls for Cavium to offer approximately $15.50 per share for all of QLogic's common stock. The per-share offer comprises $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.

Both boards of directors have approved the deal, which Cavium expects to fund via a combination of $220 million in balance sheet cash, $750 million of committed financing ($650 million of term loan and $100 million of short-term bridge debt), and $400 million in new Cavium equity. The sale is expected to close in the third quarter of this calendar year pending customary closing conditions and successful completion of the tender offer.

"Today's acquisition of QLogic is highly complementary and strategic to Cavium and it creates a diversified pure-play infrastructure semiconductor leader," asserted Syed Ali, president and CEO of 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."

Cavium expects the new assets to enable $0.60 to $0.70 of accretion to the company's CY 2017 non-GAAP earnings per share. The combined company will have nearly $900 million in LTM revenue, says Cavium, with "strong profitability and cash flow generation." Cavium executives have identified $45 million of annualized cost synergies across COGS and operating expenses that can be realized by the end of 2017 as well.

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