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Brocade to buy McData

Brocade to buy McData

Storage switch vendor Brocade Communications Systems has announced that it is buying McData in an all-stock transaction valued at US$713 million.

Brocade CEO Michael Klayko says the combined companies will be able to develop the "next-generation datacentre", offering a unified platform with interoperability in the near-term and convergence in the long-term that will protect existing user investment. The converged platform will come out in the next technology cycle, which will be slightly more than a year away, says Tom Buiocchi, Brocade's vice president of marketing.

Details on what the buyout will mean to product lines are few, but Klayko says that Brocade believes McData could lose as much as 30% of its annual revenue and still earn a profit through up to US$100 million in savings in the first year after the merger.

Klayko says there will be layoffs as a result of the merger, but won’t specify how many. McData CEO John Kelley is listed as a post-merger "advisor" in the press release about the transaction. The remainder of Brocade's executive management team will continue to serve in their roles, the release states. Brocade will retain its name and corporate headquarters in San Jose and McData will become a wholly owned subsidiary of Brocade.

The acquisition is expected to be completed in McData's first fiscal 2007 quarter, after shareholder and regulatory approval.

Both companies have been operating under somewhat of a cloud; former Brocade CEO Gregory Reyes is in the midst of a criminal hearing arising from investigations into alleged stock-option manipulations while McData has been losing market share, says Mark Kelleher, an analyst with the stock research firm Canaccord Adams, who was not upbeat about the acquisition.

"There is a complete overlap in products and customers," Adams says. "It looks like you've got one company doing very well, one company that's stumbling, and if you'd waited a couple of quarters you might have had that market share anyway."

McData had said in mid-July that in 30 days it would be announcing a product strategy that makes it easier for organisations to centralise remote storage needs and perform tasks such as backup and electronic discovery.


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