Analysts: Synergies Are Good for Brocade-McData Union

Brocade becomes a $2 billion company with the move and fortifies its product line to compete with renewed vigor in the storage networking space.

Analysts say that the synergies between data storage equipment maker Brocade Communications Systems and rival McData—which Brocade said Aug. 8 it will acquire for $713 million in stock—are good and that the proposed merger should eventually bode well for both companies.

Brocade executives told investors and analysts in a hastily arranged early-morning conference call that it will acquire rival McData for $4.61 per share. The purchase price equaled a 48 percent premium above Mondays $3.11 closing price on McDatas Class A shares.

If the deal is completed, Brocade, based in San Jose, Calif., will have increased its net worth from $1.55 billion to just under $2 billion, according to Standard & Poors CapitalIQ.

McDatas enterprise value was listed at $455 million at the time of the transaction, CapitalIQ said.

When the deal is competed, McData stockholders will own about 30 percent of Brocade, a Brocade spokesman told eWEEK. McData, in Broomfield, Colo., will become a wholly owned subsidiary of Brocade, and John Kelley, McDatas chairman and chief executive, will serve as an advisor to Brocade after closing.

Both companies boards have unanimously approved the merger. It still requires regulatory approval and a positive vote from Brocade and McData shareholders.

Brocade and McData each provide storage networking and data infrastructure hardware, software and services worldwide. They compete in the enterprise storage networking and OEM markets against such formidable foes as Cisco Systems, QLogic, and Emulex.

Next Page: Wall Street nonplussed.

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor of Features & Analysis at eWEEK, responsible in large part for the publication's coverage areas. In his 12 years and more than 3,900 stories at eWEEK, he...