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Brocade to Acquire Foundry

Craig Matsumoto
7/21/2008

Brocade Communications Systems Inc. (Nasdaq: BRCD) is buying up Foundry Networks Inc. (Nasdaq: FDRY) for $3 billion, the companies announced this evening. (See Brocade to Buy Foundry.)

The deal moves Brocade beyond storage area networking and into Ethernet equipment and IP routers -- including routers for the telecom core network as well as the data center.

Brocade is offering cash and stock worth $19.25 per share for Foundry -- an immense premium, considering Foundry shares closed at $13.66 today.

It's no shock, then, that Foundry shares are soaring in after-hours trading -- up $4.52 (33%) to $18.18 each at press time.

Brocade shares were down $1.33 (16%) to $7.00.

The deal could create an interesting competitor to Cisco Systems Inc. (Nasdaq: CSCO) in the so-called next-generation data center. Cisco is Foundry's biggest rival in Ethernet and IP, of course, and recently expanded its data center ambitions with the Nexus line of gear that will eventually combine Fibre Channel and Ethernet switching. (See Cisco's Nexus Targets Data Center's Future.)

The financial sector has been expecting a deal in this space, but it's Extreme Networks Inc. (Nasdaq: EXTR) that they assumed was getting picked up -- a scenario that still might happen. (See Extreme + Enterasys? and Extreme for Sale?) Foundry was considered less likely because CEO Bobby Johnson reportedly hasn't been open to deals in the past.

The companies expect to close the deal in the fourth quarter of 2008.

Light Reading will update the story as details emerge.

— Craig Matsumoto, West Coast Editor, Light Reading

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Pete Baldwin
Pete Baldwin
12/5/2012 | 3:36:16 PM
re: Brocade to Acquire Foundry
From the conference call, ongoing right now: They're not yet saying if there are any layoffs involved; dismissing the question til the Brocade analyst conference on 9/17.

Quote from Brocade: "This is definitely not a McData transaction, this is about seeding topline growth"

Now, I'm calling it a "surprise" deal, but -- is everyone else as surprised as me? I don't follow Brocade, so maybe there's something here i'd missed.
Light
Light
12/5/2012 | 3:36:15 PM
re: Brocade to Acquire Foundry
It is a great deal from both Brocade and Foundry's perspective. Foundry can access Brocade's strong relationship with big customers and also its large distribution network. Brocade on the other hand can leverage Foundry's extensive Ethernet experience and talented/hardworking workforce. Foundry's greatest asset is its ability to execute better and faster than anyone in the industry. However, it always lacked long-term strategy and willingness to confront Cisco. Now with a more strategic Brocade management team and more tactical Foundry's executive staff, there is a chance the combined company can succeed against Cisco..

Pete Baldwin
Pete Baldwin
12/5/2012 | 3:36:15 PM
re: Brocade to Acquire Foundry
To preview what I'll be working on tomorrow:

This has really interesting implications vs. Cisco. Brocade becomes an end-to-end competitor in the data center -- possibly the only one -- and its gear is primed to support FC *and* FCOE. Cisco's Nexus next-gen box does only FCOE (with FC support available in MDS/Andiamo).

Brocade also talks about having products that blend in with partners like IBM and EMC, rather than competing head-to-head. Orchestration layer, for example: Brocade leaves that to its partners; Cisco offers up VFrame.

That's the incomplete picture so far. Obviously there are facets to this beyond just competing with Cisco, but that's the angle that's most compelling, I think.

Would love to hear what you folks out there think of the deal.
brahmos
brahmos
12/5/2012 | 3:36:14 PM
re: Brocade to Acquire Foundry
its a good combination to take on cisco. brocade is a well respected co among the competition afaik.
everythingip
everythingip
12/5/2012 | 3:36:13 PM
re: Brocade to Acquire Foundry
Good move for Brocade, there are having a hard time developing a strategy to compete with Cisco specifically around FCOE...they lack Ethernet/IP talent, so Foundry should help them out...It looks like an all in maneuver for both companies, so this has to work or else some other company might just gobble both of them up, shred them and make use the talent.
M00ner
M00ner
12/5/2012 | 3:36:12 PM
re: Brocade to Acquire Foundry
Brocade - quality
Foundry - manure!
Iipoed
Iipoed
12/5/2012 | 3:36:11 PM
re: Brocade to Acquire Foundry
the only manure is coming from your little cubicle at crisco
everythingip
everythingip
12/5/2012 | 3:36:08 PM
re: Brocade to Acquire Foundry
these are obvious insights, we have really got some keen thoughts

cheers
Honestly
Honestly
12/5/2012 | 3:36:08 PM
re: Brocade to Acquire Foundry
You-out of work
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