Sep 23, 2010 (11:09 AM EDT)
Brocade Falls As Takeover Talk Cools

Read the Original Article at InformationWeek

Shares of Brocade were slumping Thursday after an analyst dismissed speculation that IBM or some other tech conglomerate, such as Hewlett-Packard, might try to acquire the networking gear manufacturer.

Brocade's stock price was down 4%, to $6.01, in the final hour of trading on the Nasdaq Global Select market. The company's shares spiked 11% Wednesday, to close at $6.26, on the strength of a Dow Jones report that said IBM and possibly other vendors view Brocade as an acquisition target.

But analysts at UBS Securities sent the stock lower Thursday with a report that dismissed the speculation. "We believe HPQ [Hewlett-Packard] considered BRCD [Brocade] prior to acquiring 3Com, but now with two recent deals and 3Com on its plate, is an unlikely buyer," wrote UBS analyst Nikos Theodosopoulos, in a research note.

"IBM looks unlikely too given low interest in entering SAN networking or SAN businesses. We also think it's unlikely for JNPR [Juniper], given BRCD incompatibility with JNPR growth, margin, and JUNOS [network operating system] strategy," wrote Theodosopoulos.

The analyst called Oracle a "wild card" in terms of the likelihood it might look to acquire Brocade, suggesting Brocade might be a fit with Oracle's Sun hardware unit. Theodosopoulos noted that Oracle has "a history of seeking broken firms with good technology."

Theodosopoulos maintained a neutral rating on Brocade's stock, with a price target of $5.50.

Speculation around Brocade followed IBM's announcement earlier this week that it reached a deal to acquire data warehouse appliance vendor Netezza for $27 per share, or about $1.7 billion. Netezza shares continued to trade above $27 for the third straight day, suggesting some investors believe a third party may make a higher offer for the company.

Netezza investor Anthony Kolt filed suit against Netezza's board Wednesday in Delaware Chancery Court. "Netezza's directors have not acted in a manner that is designed to obtain the highest price reasonably available to shareholders," Kolt said in his complaint.

The suit called IBM's offer of $27 per share "an exceptionally low price for Netezza."