Brocade CEO Resigning as Effort to Find Buyer Falters

Brocade CEO Klayko Resigning as Effort to Find Buyer Falters
Brocade Communications Systems Inc. shares rose 2 percent to $5.74 at 9:35 a.m. in New York. Photographer: David Paul Morris/Bloomberg

Brocade Communications Systems Inc., a maker of switches for data-storage networks that has been seeking to sell itself, said Chief Executive Officer Michael Klayko plans to resign.

Klayko, who has worked at Brocade for almost a decade in top sales and marketing roles, will stay on until a successor is identified, San Jose, California-based Brocade said yesterday in a statement. The board has enlisted a recruiting firm to find a replacement.

Brocade has worked with Frank Quattrone’s Qatalyst Partners to help auction the company, though the efforts to complete a deal have so far been unsuccessful, people with knowledge of the matter have said. The planned resignation may have been driven by the board’s desire to streamline a sale of the company, said Shebly Seyrafi, an analyst with FBN Securities in New York.

“Perhaps his departure would ease the way for some kind of transaction for Brocade to be sold,” Seyrafi said yesterday.

The CEO’s decision was announced as Brocade reported fiscal third-quarter sales and profit that surpassed analyst estimates.

“The company is in a great position financially, and our product pipeline will continue to strengthen and clearly separate Brocade from other networking providers,” Klayko said in the statement.

Takeover Target

Brocade shares rose 2.3 percent to $5.76 at the close in New York. The stock has climbed 11 percent this year amid speculation about a possible takeover by Oracle Corp., International Business Machines Corp. or private-equity firms.

The company has been the target of takeover talks for years, as its strong cash flow and dominant position in switches used in so-called storage area networks have made it an attractive target.

In February, a person with knowledge of the matter said Blackstone Group LP, the world’s biggest private-equity firm, ended talks about buying Brocade because the price was too high for a leveraged buyout.

Third-quarter profit, excluding some costs, was 14 cents a share in the latest quarter, which ended in July. That compared with an estimate of 12 cents, according to data compiled by Bloomberg. Net income was $43.3 million, up from $1.94 million a year ago. Revenue was $555.3 million, compared with an estimate of $536.9 million.

For the fourth quarter, Brocade forecast profit, excluding items, of 13 cents to 14 cents a share, compared with an estimate of 14 cents. Revenue will be $555 million to $575 million, compared with an estimate of $566.6 million.

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