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Brocade chomps McData

Swallows $713m McNugget whole

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Brocade will acquire fellow storage switch maker McData in a $713m all-stock deal.

Under the terms, McData shareholders will control 30 per cent of the new combined company. Based on Brocade's $6.14 closing price yesterday, McData's shareholders will get 0.75 Brocade shares for each McData share they own, valuing McData's stock at around $4.61 a piece. McData's market value Monday was $3.11 for class A stock and $2.85 for class B.

Both boards gave unanimous approval to the deal, which is expected to be completed by Q1 2007. The firms will continue as separate entities until then.

Brocade CEO Michael Klayko said: "The acquisition of McData will build on Brocade's vision for the next generation data centre, leveraging Brocade's product innovation and operational discipline.

"The combined company will accelerate innovation and the delivery of a diverse set of compelling and cost-effective solutions to customers, while preserving investment protection, simplifying administration and management, and delivering greater interoperability."

Brocade, McData and Cisco dominate the Fibre Channel storage switch market. This deal would clearly strengthen McCade's position against the much larger Cisco, which only entered the market in 2002 after acquiring Andiamo. Cisco has long set a goal of becoming the number one or two Fibre Channel switch player and the creation of Brodata assures it of hitting that target.

Brocade anticipates $100m annual cost savings through the merger. Brocade's top brass will stay, with McData CEO John Kelley taking an advisory role and two McData directors joining the combined board. Brocade will maintain its name, with McData becoming a wholly-owned subsidary on closing the deal.

In separate releases, the two firms delivered preliminary results. Brocade expects net revenues around $189m for its fiscal Q3, up 54 per cent on the same period last year, and delivering earnings per share of $0.08 to $0.09. The final results are due 17 August. Read the press release here.

McData, meanwhile, expects net revenues of between $150m and $152m, below previous guidance of $170m to $180m. Earnings per share will be break-even at best, and potentially a loss of $0.02. The firm blames weak demand ahead of forthcoming product launches. McData's figures are here. ®

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