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Cavium headquarters in San Jose, California

Cavium to Buy Data Center Chip Maker QLogic for $1.36B

Deal meant to broaden set of components for data center equipment makers in Cavium's lineup

(Bloomberg) -- Cavium, a maker of chips used in computer networks, said it will buy QLogic in a cash-and-stock deal valued at about $1.36 billion, aiming to provide a broader set of components for data center equipment makers.

Cavium will pay $15.50 a share for QLogic, consisting of $11 in cash and 0.098 of a share of Cavium stock, the San Jose, California-based company said Wednesday in a statement. The total valuation includes QLogic’s $355 million in cash. The two companies boards have approved the transaction, according to the statement.

The combined company will be able to offer a more diverse set of components to makers of machinery used in data centers, Cavium said. Chipmakers and component vendors are increasingly getting together to try to build scale that will help them deal with rising costs of new product development and a narrowing customer base.

In its most recent fiscal year, Aliso Viejo, California-based QLogic had $458.9 million in revenue compared with $412.7 million at its new owner. Cavium is predicting QLogic will add as much as 70 cents a share to its earnings in calendar year 2017 with $45 million in costs saved in that time frame.

Cavium is paying for the acquisition with $220 million in cash on hand, $650 million of loans, $100 million in a short-term bridge loan and $400 million of new shares.

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