The deal pays Ruckus shareholders $6.45 in cash and 0.75 shares of Brocade common stock, for a total of $14.43 per share, a nearly 45% premium to the target's close on Friday. The total payout comes to $1.5 billion in cash and stock, but net of Ruckus's cash the deal value is $1.2 billion.
Ruckus shares gained $3.24, or 32%, to close at $13.24. Brocade dropped $1.45, or nearly 14%, to close at $9.19 $9.11. Ruckus develops WiFi products for mobile carriers, broadband providers, corporations and other large enterprises.
Brocade CEO Lloyd Carney told investors during a Monday call the acquisition would bring the company "the most innovative WiFi assets in the industry."
With increased investment in WiFi by telecommunications carriers and the advances that Ruckus has made in some of its new applications, BTIG analyst Walt Piecyk noted in a Monday report that Ruckus could attract other suitors.
The price tag might not deter large bidders including Ericsson (ERIC - Get Report) , Nokia (NOK - Get Report) , CommScope (COMM - Get Report) or Juniper Networks (JNPR - Get Report) , Piecyk suggested. Nokia, CommScope and Juniper Networks declined to comment. Ericsson did not immediately respond to a query.
Brocade and Ruckus signed confidentiality agreements in February, Securities and Exchange Commission filings state. When asked during Monday's call if Ruckus had held talks with any of the large networking groups, CEO Selina Lo did not address the topic.
With the pending sale of Ruckus, Dougherty & Co. analyst Catherine Trebnick noted Monday, the field of wireless networking companies is thinning. The former Hewlett-Packard bought Aruba Networks for $3 billion in March 2015. Fortinet (FTNT - Get Report) purchased WiFi gear maker Meru Networks in July 2015 for $44 million.
Trebnick put the sale of Ruckus Wireless at roughly 2.6 times projected 2016 revenue estimate of $437.65 million. RBC Capital Markets analyst Mitch Steves valued the deal at 2.8 times sales for the coming twelve months and 25.5 times earnings for the coming year, compared to Aruba's sale to HP at 3 times sales and 20.1 times earnings.
The parties expect to close the deal in Brocade's third fiscal quarter.