Elliott Gains Opening to Press for Change With Brocade Stake

Elliott Management Corp., the investor that pushed Novell Inc. to sell itself last year, amassed an 8.5 percent stake in Brocade Communications Systems Inc. (BRCD), gaining an opening it could use to agitate for change.

The New York-based hedge-fund investor holds 40.8 million shares of San Jose, California-based Brocade, according to an Aug. 15 filing with the U.S. Securities and Exchange Commission.

Elliott added to its stake becoming Brocade’s biggest shareholder on Aug. 5, the day Brocade’s shares fell 28 percent to $3.52, the biggest decline since its 1999 initial public offering. The plunge came after the company disclosed sales and profit that missed forecasts, citing tepid demand. Elliott may be planning to urge Brocade to sell itself, said Rajesh Ghai, an analyst at ThinkEquity LLC.

“If Brocade was managed better, it could be worth much more,” Ghai said. “It comes as no surprise that someone like Elliott would increase its stake and try to push for a sale.”

Brocade, which has lost 29 percent of its value this year, has a market value of $1.79 billion. The stock fell 2 cents to $3.73 at 4 p.m. New York time on the Nasdaq Stock Market.

Brocade has been looking for potential buyers with the assistance of Frank Quattrone’s Qatalyst Partners for the past two years, a person familiar with the matter said last month. Dell Inc. considered buying Brocade before opting instead to acquire Force10 Networks Inc. last month, the person said.

Potential Acquirer

Oracle Corp. (ORCL), the largest maker of database software, is a potential acquirer, said Ghai, who has a “buy” recommendation on Brocade and a $5 target price.

Peter Truell, a spokesman for Elliott, declined to comment, as did John Noh, a spokesman for Brocade. Deborah Hellinger, a spokeswoman for Redwood City, California-based Oracle, didn’t respond to a request for comment.

Fund managers sometimes use their status as shareholders to urge management to shift strategy or look for a buyout. Activist investor Carl Icahn pressed Motorola Mobility Holdings Inc. on July 21 to explore strategic alternatives. Google Inc. said on Aug. 15 that it bought Motorola Mobility for $12.5 billion.

After buying a stake in McGraw-Hill Cos., Jana Partners LLC disclosed in an Aug. 1 filing it held talks with the textbook publisher and owner of Standard & Poor’s about corporate structure and future plans.

Elliott made an unsolicited $2 billion offer for Novell last year after building an 8.5 percent stake in the Linux software maker. Novell was later bought by Attachmate Corp. for $2.2 billion.

To contact the reporter on this story: Serena Saitto in New York at ssaitto@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net; Jennifer Sondag at jsondag@bloomberg.net.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.