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Brocade cuts Foundry price

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Now we know why the Foundry shareholder vote on the Brocade bid takeover was stopped three days ago - Brocade wanted to cut its bid price. Foundry shareholder resistance, as we thought, wasn't the stumbling block at all.

On July 21 the bid was worth $3bn with Foundry shareholders receiving $18.50 cash and 0.907 of a Brocade share for each Foundry share they own, making a total offer of $18.75 per Foundry share, then trading at $13.66. Now Brocade wants to pay $2.6bn and Foundry management has agreed.

The new terms are $16.50 for each Foundry share which currently trade at $13.00, making a 29 per cent bid premium. Foundry shareholders get to vote on the deal on November 7th.

It's like reverse gazumping - gazundering? - in which a house buyer cuts the agreed purchase price for a house because the overall house market has gone down. The buyer can do this because the seller wants to sell and has nowhere else to go. Canny Brocade - it's just saved 400 million bucks.

Oddly enough that's the exact same amount of money it was trying to raise in a corporate debt scheme just before it revised the bid offer. Earlier it had agreed a $1.23bn loan and revolving credit facility with the Bank of America and Morgan Stanley to help finance the takeover. The $400m corporate notes scheme was needed to raise additional finance for the Foundry deal. Now it no longer has to try and sell its corporate notes to shell-shocked, terror-struck, and extremely risk-averse financial institutions.

Foundry has separately concluded an alliance with WAN data acceleration supplier Blue Coat Systems. Foundry's ServerIron products send data to BlueCoat ProxySG appliances, which accelerate its transfer across the network. The ServerIron kit can balance traffic across multiple ProxySG appliances, meaning service providers can scale network bandwidth up to multiple trunked 10Gbit/s connections. A Saudi Arabian ISP is already using the two supplier's kit in this way.

This will help return Brocade to the WAN acceleration space as it previously had an investment in, and an arrangement with, Tacit Networks in 2005. Packeteer bought Tacit in 2006 with the Brocade arrangement continuing. Brocade announced a Branch File Manager file transfer product based on Tacit kit in May, 2007, but it wasn't successful and Brocade exited the WAFS (Wide Area File Services) market later that year. Blue Coat bought Packeteer in April this year. It now looks as if Brocade will buy a Blue Coat partnership along with Foundry.

Brocade yesterday introduced a new family of Data Center Virtualization Services designed to optimize application and fabric performance, improve data protection, and unify management across the data centre. ®

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