Brocade Rises Amid Speculation Company May Be Bought

Brocade Communications Systems Inc., the biggest maker of switches for data-storage networks, rose 11 percent, the most in almost a year, amid speculation that the company is an acquisition target.

Options traders boosted bullish wagers and Brocade stock surged by as much as 74 cents to $6.39 by late afternoon, marking the largest gain since October 2009. Stock volume of 60 million shares was the highest since May.

Brocade, which competes with Cisco Systems Inc. and Juniper Networks Inc. in the market for gear that directs data over computer networks, was named by Wedbush Morgan Securities Inc. in April as a potential acquisition candidate. Armed with growing cash hoards, Oracle Corp., Hewlett-Packard Co., Dell Inc., and International Business Machines Corp. have been snapping up targets in a drive to become one-stop providers of hardware and software for businesses.

“The stock is up on speculation about IBM buying Brocade,” said Aaron Rakers, a St. Louis-based analyst at Stifel Nicolaus & Co. “Storage, networking and computing coming together is definitely front and center among these big tech behemoths.” Rakers has a “hold” rating on the shares and doesn’t own them.

Brocade, based in San Jose, California, rose 61 cents to $6.26 at 4 p.m. New York time in Nasdaq Stock Market trading.

Elizabeth Walther, a spokeswoman for Brocade, declined to comment, as did Edward Barbini, a spokesman for Armonk, New York-based IBM.

Call Option Trading

Trading of options to buy Brocade shares surged to 123,000 contracts, almost triple the four-week average and 24 times the number of puts to sell. Implied volatility, the key gauge of option prices, for at-the-money options expiring in 30 days, surged 45 percent to 57.83.

The most-active contracts were October $6 calls, which more than quadrupled to 47 cents and accounted for almost half of call volume. Sixty-five percent of those trades were on the ask price, indicating that buyers initiated most of today’s transactions. Second-most-active were October $7 calls, which jumped sixfold to 18 cents for the biggest gain among Brocade options.

To contact the reporter on this story: Joseph Galante in San Francisco at jgalante3@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net

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