Brocade to buy McData for $713M

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

Brocade CEO Michael Klayko said the combined companies would be able to develop the "next-generation data center," offering a unified platform with interoperability in the near term and convergence in the long term that would protect existing user investment. He also mentioned improved management tools and speed to market. The converged platform will come out in the next technology cycle, which will be slightly more than a year away, said Tom Buiocchi, Brocade's vice president of marketing.

Details on what the buyout would mean to product lines were few, but Klayko said Brocade said McData could lose as much as 30 percent of its annual revenue and still earn a profit through up to $100 million in savings in the first year after the merger from syntergies.

Klayko said there would be layoffs as a result of the merger, but he did not specify how many. McData CEO John Kelley was 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 stated. 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, said Mark Kelleher, an analyst with the stock research firm Canaccord Adams, who was not upbeat about the acquisition.