Posted on 08/08/2006 10:27:01 AM PDT by nickcarraway
Brocade Communications Systems Inc. (BRCD) said on Tuesday it would buy rival McData Corp. (MCDT) in a $713 million stock deal, bolstering its line of equipment for data storage networks to compete against Cisco Systems Inc. (CSCO).
Both companies sell equipment that boosts the efficiency of corporate communications networks used for data storage, with Brocade best known for mid-range products known as data switches, while McData's market share is strongest in directors, which are high-end versions of data switches.
"It's made sense for them to come together to take on Cisco for a long time," said Glenn Hanus, an analyst with Needham & Co. "It probably should have happened some time ago."
Under the deal, McData stockholders will receive 0.75 shares of Brocade common stock for each share of McData class A common stock and each share of McData class B common stock.
Based on Monday's closing prices, that is equal to about $4.61 a share, or a 48 percent premium to McData's class A share price. The deal is expected to close as early as Brocade's 2007 fiscal first quarter, which ends in January 2007.
The class A shares of Broomfield, Colorado-based McData rose 66 cents, or 23 percent, to $3.51, while San Jose, California-based Brocade's shares fell $1.15, or 19 percent, to $4.99 in Nasdaq trade.
Brocade, whose former chief executive is accused of misleading investigators in a probe of the company's stock options, said the deal would add to earnings by the fourth quarter of combined operations. McData stockholders would own about 30 percent of Brocade.
The companies said their merger will allow them to reduce combined expenses by about $100 million on an annualized basis, giving them more resources to invest in research and development on new technologies and products.
Both companies also released earnings forecasts.
Brocade said it expects third-quarter net revenue of $188 million to $189 million and net earnings per share of 8 to 9 cents.
McData said it expects second-quarter earnings per share excluding items to range from a loss of 2 cents to break-even on revenue of $150 million to $152 million.
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