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11/20/2008
05:15 PM
Howard Marks
Howard Marks
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Brocade/Foundry Deal On The Rocks?

The merger of Brocade, the clear leader in enterprise Fibre Channel switching, with Foundry Networks, one of the group with Extreme and Force10 that keeps Cisco honest at the high end of the Ethernet switching market, seemed like a good match back in August. With Cisco and the HBA vendors (Emulex and QLogic) pushing FCoE as the best thing since Fibre Channel itself (iSCSI's just for kids, you know) Brocade had to team up with an Ethernet switch vendor to try selling FC/FCoE switches that users p



The merger of Brocade, the clear leader in enterprise Fibre Channel switching, with Foundry Networks, one of the group with Extreme and Force10 that keeps Cisco honest at the high end of the Ethernet switching market, seemed like a good match back in August. With Cisco and the HBA vendors (Emulex and QLogic) pushing FCoE as the best thing since Fibre Channel itself (iSCSI's just for kids, you know) Brocade had to team up with an Ethernet switch vendor to try selling FC/FCoE switches that users plugged into Cisco Ethernet gear down the line.Like everything else in the world, acquisitions take credit. With the implosion of the credit markets this fall, the $3 billion deal has morphed at least twice into smaller and, at least for my friends at Foundry with stock options, less-profitable deals.

In October Brocade modified its offer from $18.50 plus a buck and a quarter's worth of stock to $16.50 a share, trimming $400 million off the deal.

Despite the $1.1 billion line of credit Brocade arranged to pay for the deal, it doesn't seem to be going smoothly.

This week's filings with the SEC revealed that Brocade gave Foundry permission to not only entertain, but also to solicit, other offers until tomorrow. We can only surmise that Brocade's management isn't happy with the financing options available to them. Where's Michael Milken when you really need him?

If the deal doesn't get done this year, Foundry can walk away and pocket $85 million or $125 million, depending on the details.

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