Brocade/Foundry Gets a Do-Over

Shares of Foundry Networks Inc. (Nasdaq: FDRY) rebounded this morning as the deal with Brocade Communications Systems Inc. (Nasdaq: BRCD) got repriced last night to $2.6 billion from $3 billion.

A drop in price might not seem like good news for Foundry, but Foundry's sudden climb -- up $2.14 (16%) to $15.14 at midday -- suggests that investors were worried the deal would collapse entirely.

Brocade's stock was up 21 cents (6%) at $3.74.

On Oct. 24, Foundry postponed the meeing where shareholders were set to vote on the deal. Foundry shares dropped 24 percent that day. (See Foundry Tanks on Merger Holdup.)

Foundry said the delay had something to do with recent events, and the drop in Brocade's stock price would seem a reasonable culprit. Brocade shares closed Oct. 23 at $2.85 -- down 66 percent from July 21, when the Foundry deal was announced.

The new terms have Brocade paying $16.50 per share for Foundry -- a 14 percent drop, and less than the stock's Oct. 23 closing price of $17.04. (See Brocade/Foundry Price Lowered.)

One problem, according to analysts, was that Brocade hadn't wrapped up all the financing for the deal. The company had at least cleared the hurdle of getting a $1.2 billion credit facility with Bank of America; analysts attending a Brocade event in September had seemed concerned about that money coming through. (See Brocade Secures Credit and Brocade/Foundry Readies Ethernet Invasion.)

The new date for Foundry's shareholder meeting was supposed to be yesterday, but the companies need more time to pound out the new paperwork. The meeting has now been pushed back to the afternoon of Nov. 7.

— Craig Matsumoto, West Coast Editor, Light Reading

Iipoed 12/5/2012 | 3:28:21 PM
re: Brocade/Foundry Gets a Do-Over Brocade makes a deal, then cannot get acceptable 400m financing, should have just bit the bullet and paid the 85m cancellation fee. Instead they push back the vote buy using the gloom and doom tatic, the stock dumps and FDRY basically has no choice but to go ahead at 2.75 per share less or see the idiotic market take it to 10 again. Seems like BRCD had them over a barrel. Blame it on the economy and the unprofessional BRCD upper management. Hope Bobby starts a new company as I cannot imagine he would work for Brocade.
Stevery 12/5/2012 | 3:28:18 PM
re: Brocade/Foundry Gets a Do-Over Seems like BRCD had them over a barrel. Blame it on the economy and the unprofessional BRCD upper management.

Obviously, FDRY could have walked away too, esp at the reduced price. Why do you think Bobby did not?
Pete Baldwin 12/5/2012 | 3:28:17 PM
re: Brocade/Foundry Gets a Do-Over Apparently the shareholder meeting could get pushed out even further, as Foundry disseminates a revised deal to its shareholders.


Not sure why they'd set the Nov. 7 date if they knew they would have to change it again.
Iipoed 12/5/2012 | 3:28:15 PM
re: Brocade/Foundry Gets a Do-Over Most likely because if they had walked the stock would maybe have hit single digits. Be interesting to see if they had the votes to approve the original deal if so then I think they should have walked and collected 85m fee from Brocade for cancelling/failing to get financing/or whatever. I still believe FDRY can do a lot better than these opportunists at Brocade.
nyc 12/5/2012 | 3:28:14 PM
re: Brocade/Foundry Gets a Do-Over I have to disagree. At this point this is still a great deal for FDRY. There are no other suitors for FDRY and the Brocade/Foundry combination does make sense. Once Juniper built there own ASICs and switching product line that ousted the last potential buyer for Foundry. Bobby J will make lots of money even at this price. Who else could/would by FDRY
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