Enterprise technology vendor Enterasys Networks Inc. wants to buy something big, and the word around Wall Street is that Ethernet switch firm Extreme Networks Inc. (Nasdaq: EXTR) is its current target.
Extreme stock climbed 18 cents (5.9 percent) to $3.25 Thursday after analyst Samuel Wilson of JMP Securities
issued a note saying Extreme is in serious negotiations with at least one potential buyer. Wilson didn't specify a likely candidate, but sources from the financial industry are saying Enterasys is looking likely.
Neither Enterasys nor Extreme would comment.
For the past couple of months, Extreme has been rumored to be on the block; in fact, there's even been talk that private equity firms see a turnaround possibility in the company. (See Extreme for Sale?)
That's far, far different from the Juniper Networks Inc. (Nasdaq: JNPR) scenario that came up repeatedly, back before Juniper launched its EX line of switches. In that case, analysts considered Juniper to be in need of an Ethernet plan, and the purchase of Extreme was a rumor that came up multiple times. (See Juniper: EX, Not Extreme.)
Extreme's stock has lagged of late, even when compared to the recent weak stock market. The Nasdaq composite has recovered to about the same level as a year ago, and Juniper shares are even up more than 10 percent from a year ago. But Extreme is down, and some in the financial sector believe a restructuring could do it some good.
EXTR 12-Month ChartIt's been a bumpy year for Extreme
Extreme's market capitalization is around $375 million, and it's carrying roughly $120 million in cash.
So this might be a good time for Enterasys, which was acquired by a group of private equity investors in March 2006, to make its move. It's looking for ways to make more of a dent in the Cisco Systems Inc. (Nasdaq: CSCO) enterprise machine. Enterasys officials haven't been shy about saying they'd like to make a big purchase.
Separately, there's another Enterasys/Extreme tie: The companies are locked in a couple of patent lawsuits. One case is scheduled to go to court next week, and some theories put Thursday's interest in Extreme stock down to market speculation that a settlement is on the way.
So - just to close the loop on the story, we were told some time ago that Enterasys & Extreme were talking but the deal collapsed on price. Shades of Juniper, I suppose.
That said ... EXTR stock rose 30 percent at the end of the day today, quite suddenly. I haven't had a chance to check it out yet, but maybe some other rumor has hit the trading floor.
I thought that Enterasys had fairly decent edge products but no core platform. Extreme has great edge products and well... there's better core stuff on the market than the Black Diamond. What about Force-Ext-erasys??
As an ex-tronnie who has spent the last 5 years removing the whiff of failure from himself, my advice to any Extreme employees who get acquired by Enterasys is: RUN! There is still a lot of DNA from the Benson and Levine days at Enterasys and there has never been a happy marriage between the bad boys of networking and any acquisition! There's no reason to believe that Extreme's line would fix Enterasys. Their (Cabletron) premier product (SPECTRUM) was dumped for $7M, then was re-packaged to CA for $71M, showing that there never was a clear appreciation for value (shareholder or otherwise) at the top.
Run away! Flee! Lekh lekha! (my apolgies in advance!)
Yes, Eneterasys was a public company and it became private. They can do the same with Extreme & when the profits are really significant after restructuring and a little increase in sale they will again have an option to go public. Board decides the fate of the company.
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It's been a bumpy year for Extreme
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