Brocade Falls As Takeover Talk Cools

Sep 23, 2010 (11:09 AM EDT)

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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."