Extreme Networks Stock Up On Deal To Buy Brocade's Data Center Networking Unit

(RTTNews) - Shares of Extreme Networks, Inc. (EXTR) gained around 17 percent in the after-hours trading on Wednesday after the company announced an agreement to buy the data center networking business of Brocade Communications Systems, Inc. for $55 million in cash.

The company signed an agreement with Broadcom Limited (AVGO) to buy Brocade's data center switching, routing, and analytics business, following Broadcom's acquisition of Brocade.

The cash consideration consists of $35 million at closing and $20 million in deferred payments, as well as additional potential performance based payments to Broadcom, to be paid over a five-year term.

Extreme expects the acquisition to be accretive to cash flow and earnings for its fiscal year 2018 and expects to generate over $230 million in annualized revenue from the acquired assets.

The acquisition is expected to close within 60 days following the closing of Broadcom's acquisition of Brocade.

The closing of the transaction is contingent on Broadcom closing its acquisition of Brocade, previously announced on November 2, 2016 and approved by Brocade shareholders on January 26. Broadcom presently expects to close the Brocade acquisition in its third fiscal quarter ending July 30, 2017.

Extreme's acquisition is presently expected to close approximately 60 days following the closing of Broadcom's acquisition of Brocade.

Extreme expects to fund the transaction with funds resulting from an anticipated amendment increasing its existing credit facility.

Ed Meyercord, President and CEO of Extreme Networks, said, "The addition of Brocade's data center networking business significantly strengthens our position in the expanding high-end data center market and reinforces our strategy of delivering software-driven networking solutions focused on enterprise customers."