Network service provider Brocade (News - Alert) recently made a move to step up its Wi-Fi operations, purchasing Ruckus Wireless for around $1.2 billion in a mix of cash and stock. It was a move that met with mixed reaction from the market, and one that may not offer much value for Brocade for a while.
Brocade offered Ruckus shareholders around $14.43 per share, a move that sent Ruckus shares on an upward trend, reaching about 30 percent gain at one point. Ruckus shareholders were to get a combined stock / cash price of $6.45 per share and 0.75 common stock shares of Brocade. The deal was reportedly valued at around $1.5 billion after cash acquired had been factored in, and is expected to close by the end of July.
Seemingly in response, Brocade shares dropped over 14 percent on Monday morning trades. The share prices did recover off the lows on Monday, at least for a while, but the price was still down off the open. A separate report suggested that the deal would add to Brocade's adjusted earnings by the first quarter of fiscal 2017, and Ruckus' operations would continued to be led by current Ruckus chief executive officer (CEO) Selina Lo (News - Alert), who would now report directly to Brocade's CEO Lloyd Carney.
It's odd that the market would respond in such fashion. Brocade now has the ability to offer expanded Wi-Fi services to its customers, and given that Brocade is a fairly major name in networking, having that extra service to offer should be regarded as a value point. It might be that the market figures Brocade overpaid; some reports suggest Brocade paid a premium of 44 percent for Ruckus shares, and that could be seen as Brocade shelling out too much cash for too little return. It also may not be exactly welcome that the deal really won't start contributing much to the bottom line until sometime in the next fiscal year, potentially making some think that Brocade not only overpaid, but overpaid for a system that wouldn't offer much turnaround in rapid fashion.
This is largely speculative, of course, based on what's currently known. Still, Brocade may well have the last laugh here as it uses its new acquisition to make a current customer base happier, and bring in new customers to match.