Barclays Says QLogic Buyout Will 'Grow On People'

After market close on June 15, Cavium Inc (NASDAQ: CAVM) announced that it will be acquiring QLogic Corporation (NASDAQ: QLGC) for $15.50 per share.

Barclays’ Joseph Wolf maintains an Equal Weight rating on QLogic, with a price target of $13.

The Deal

Wolf mentioned that the offer comprised $11 per share in cash, with 0.098 Cavium common stock being exchanged for each share of QLogic’s common stock.

“The transaction values QLGC at approximately $1.36 billion in equity value, inclusive of approximately $355 million of cash on QLGC's balance sheet,” the analyst stated.

Related Link: Jeffries Downgrades Cavium To Hold

Cavium intends to finance the deal through a combination of $220 million in balance sheet cash, $750 million in committed financing and $400 million in new equity.

Where QLogic Stands

According to the Barclays report, “QLGC has announced design wins for its 25/50/100G Ethernet business, but those are not expected to contribute to revenues in a significant manner in the near term and that business is still small compared to its Fibre Channel business.”

The end market for the Fibre Channel business has been benefitting from flash array growth but is still performing at flat to slightly declining.

QLogic’s balance sheet is strong, the analyst pointed out, although with 85 percent of the $355 million in cash being overseas.

“Management did not comment on the report, but we had previously noted that its strong cash flow generation could make it an interesting target,” Wolf added.