Brocade Shares Rise on Report Network-Switch Maker Received Takeover Bids

Brocade Communications Systems Inc. (BRCD), which makes switches for data-storage networks, rose after Reuters reported that the company has received bids from a handful of potential buyers.

Shares of San Jose, California-based Brocade jumped (BRCD) 6.5 percent to $5.77 at the close in New York. Pavel Radda, a spokesman for Brocade, declined to comment.

Brocade has been trying to find a buyer with the help of Frank Quattrone’s Qatalyst Partners for the past two years, a person with knowledge of the matter said in July. At the time, computer maker Dell Inc. passed over Brocade to buy Force10 Networks Inc., the person said. Now, International Business Machines Corp. and Oracle Corp. are among likely suitors for Brocade, said Brian Marshall, an analyst at ISI Group.

IBM and Oracle might be interested in Brocade’s corporate- network switches business, gained in the 2008 acquisition of Foundry Networks Inc., Marshall said. That would help them fend off networking leader Cisco Systems Inc., which is moving into the computer business, and Hewlett-Packard Co., which added to its own networking business by buying 3Com Corp. in 2010.

James Sciales, a spokesman for IBM, declined to comment, as did Deborah Hellinger, a spokeswoman at Oracle. A Qatalyst Partners representative also declined to comment.

Reseller Agreements

As attractive as its assets may be, Brocade’s client partnerships would make an acquisition tricky, Marshall said. One hurdle is that 60 percent of the company’s data-storage products, responsible for more than half of Brocade’s revenue, are sold through agreements with IBM, Oracle and Hewlett- Packard, he said. If any of those companies bought Brocade, the deals with the other two would probably end.

“That creates a lot of complexity,” Marshall said. “That’s why we haven’t seen much interest in the deal.” Other potential acquirers might include Hitachi Data Systems Corp. or Huawei Technologies Co., he said.

In November, Brocade reported fiscal fourth-quarter profit that topped analysts’ estimates, citing record revenue for its ethernet business and fast adoption of its 16 gigabit-per-second fiber-channel products, or components of storage-area networks. The results eased concerns that Dell’s purchase of Force10 might hurt Brocade, sending the shares up 13 percent the next day.

The company’s shares, which reached a high of $133.72 in October 2000 following an initial public offering in May 1999, fell less than 2 percent in 2011.

To contact the reporter on this story: Peter Burrows in San Francisco at pburrows@bloomberg.net

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

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