Brocade to buy Foundry for $3 billion

Storage networking company Brocade Communications Systems has agreed to acquire enterprise LAN vendor Foundry Networks for approximately US$3 billion, the companies announced Monday.

Brocade said the deal will make it a top provider of networking gear for enterprises and service providers, by allowing it to offer a full line of products that extends from the Internet to wide- and local-area networks and into the data center.

The deal has been approved by the boards of both companies and is expected to close in the fourth quarter, pending approval by Foundry's stockholders and other closing conditions, Brocade said.

Brocade will pay $18.50 in cash plus about one-tenth of a share of Brocade stock for each share of Foundry, for a total of $19.25 per share. Brocade expects to fund the deal with cash from both companies and $1.5 billion of debt financing.

Data centers and enterprise LANs, which typically are built with different network technologies, are widely expected to converge on Ethernet with a still-emerging standard called Fibre Channel over Ethernet (FCoE). Foundry is one of a handful of longtime Ethernet LAN vendors that have lived in the shadow of Cisco Systems.

"Our business models and technologies are extremely synergistic," Marty Lans, Brocade senior director of product management for data center infrastructure, said in an interview. Foundry has "the best technology and the broadest set of features," he said.

The companies do not expect to make layoffs following the deal, he said.

Foundry was founded in 1996 and has about 1,100 employees. It posted its preliminary second-quarter financial results Monday. Revenue was $160.7 million, up from $143.2 million in the same quarter last year. Net income was $18.3 million, up from $15.6 million.

The combined company will be led by Brocade CEO Michael Klayko and will use only the Brocade brand, although product names from Foundry will remain, executives said on a conference call following the announcement. The companies haven't defined a role for Bobby Johnson, Foundry's founder, president and CEO, but said the 30-year networking veteran would stay on board.

"I'm committed to making this happen, and I'm committed to helping Mike and both teams," Johnson said.

Brocade executives contrasted the Foundry deal with Brocade's 2006 acquisition of McData, where there were many overlapping products and a key driver of the deal was cost savings. They expect this buyout to boost revenue and increase Brocade's earnings beginning in its 2009 fiscal year, which will end in October 2009.

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