Cavium to acquire QLogic

The transaction values QLogic at approximately $1.36bn in equity value, inclusive of approximately $355m of cash on QLogic’s balance sheet, and has been unanimously approved by the boards of directors of both companies.

The acquisition provides:

• Opportunity to drive significant growth at scale in data center and storage markets: QLogic's leading portfolio of advanced connectivity and storage solutions is highly complementary to Cavium’s extensive portfolio of networking, compute, and security solutions. The combination enables Cavium to offer a complete end-to-end offering to customers in Enterprise, Cloud, Data Center, Storage, Telco and Networking markets. QLogic adds an incremental $2+ bn market opportunity for Cavium.

• Substantial customer and revenue diversification: The combined customer base includes market leading OEMs and end-customers across a broad set of end markets that diversifies Cavium’s revenue and presents a unique opportunity to accelerate further growth.

• $0.60 to $0.70 of accretion to Cavium’s CY 2017 non-GAAP EPS: The combined company will have nearly $900m in LTM revenue, with strong profitability and cash flow generation. There are $45m of identified annualized cost synergies across COGS and operating expenses expected to be realised by the end of 2017. The transaction is expected to create significant value for the shareholders of both companies.

“Today’s acquisition of QLogic is highly complementary and strategic to Cavium and it creates a diversified pure-play infrastructure semiconductor leader,” stated Syed Ali, President and Chief Executive Officer of Cavium.  “QLogic’s industry leading products extend our market position in data centre, 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.”

“QLogic with Cavium is a winning combination for customers and employees and is financially compelling for QLogic shareholders,” said Christine King, Executive Chairman of QLogic. “The scale of operations of a nearly $1bn revenue business will allow the combined company to deliver better solutions for customers and create more career opportunities for employees. Shareholders will benefit from both the immediate premium, as well as the opportunity to participate in the long-term value creation from the combined company’s strong growth prospects.”

The transaction will be funded with a combination of $220m balance sheet cash, $750m of committed financing, which includes $650m of term loan and $100m of short-term bridge debt, and $400m in new Cavium equity. Under the terms of the definitive merger agreement, a wholly-owned subsidiary of Cavium will commence an exchange offer to acquire all of the outstanding shares of QLogic common stock for $11.00 in cash and 0.098 of a share of Cavium common stock (approximately $4.50 per share based on the volume weighted average Cavium trading price for the three trading days beginning June 10, 2016) for each share of QLogic common stock tendered in the exchange offer.

Upon satisfaction of the conditions to the exchange offer, and after the shares tendered in the exchange offer are accepted for payment, the agreement provides for the parties to effect, as promptly as practicable, a merger, which would not require a vote of QLogic's stockholders, and which would result in each share of QLogic common stock not tendered in the exchange offer being converted into the right to receive $11.00 in cash and 0.098 of a share of Cavium common stock.

The transaction is expected to close in the third quarter of calendar year 2016 pending customary closing conditions, including the tender into the exchange offer by QLogic stockholders of shares representing at least a majority of the outstanding shares of QLogic common stock, and the receipt of relevant regulatory approvals, including the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. J.P. Morgan acted as exclusive financial adviser and provided a financing commitment to Cavium; Skadden, Arps, Slate, Meagher & Flom LLP acted as Cavium’s legal counsel. Qatalyst Partners acted as exclusive financial adviser to QLogic and O'Melveny & Myers LLP acted as QLogic’s legal counsel.

Conference Call Cavium management will host a conference call to discuss details of the transaction. A live webcast and the accompanying presentation relating to the transaction will be available in the "Investors" section of Cavium’s website at http://www.Cavium.com in advance of the conference call. Conference call date: June 15, 2016 Time: 2:00pm Pacific (5:00pm Eastern)  Dial in #: US 888-576-4398, International +1 719-325-2281 Passcode is 7994851 A replay of the call will be available for one week by dialing 888-203-1112 (US) or +1 719-457-0820 (International) and the passcode is 7994851. A webcast of the conference call will also be available in the "Investors" section of Cavium’s website at http://www.cavium.com.