Brocade to buy McData

Posted on August 09, 2006

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By Kevin Komiega

—Brocade made a bold move this week and narrowed the playing field in the storage networking market when the company announced its plans acquire chief rival McData. According to some analysts, the effects of the acquisition will be far reaching and could serve as a catalyst for the development of network-based storage intelligence and end-user adoption of iSCSI technology.

Under the terms of the deal, Brocade will acquire McData in an all-stock transaction valued at approximately $713 million. When the dust settles, McData's shareholders will own roughly 30% of the new company.

The deal has been unanimously approved by the boards of both companies, but is still subject to approval by shareholders and the SEC. The acquisition could be completed as soon as the first quarter of 2007.

One side effect of Brocade buying McData might be felt in the iSCSI SAN market. "Brocade can now be more aggressive in developing and delivering iSCSI-based products to end users, which may prompt an uptick in adoption of the technology," says William Hurley, a senior analyst with the Data Mobility Group consulting and research firm.

Brocade has found success in small and midrange environments while McData's stronghold has historically been in the high-end director market. The acquisition will not only give Brocade a bigger presence in large enterprises, but will also boost its software and services organization.

Brocade CEO Michael Klayko believes providing unified, interoperable storage management will be the bread and butter of the combined Brocade-McData.

"Our customers have been telling us they are frustrated by a lack of interoperability and data growth compounds the complexity. Our customers want simpler and more-scalable solutions and expertise and assistance in deploying and managing next-generation infrastructures," says Klayko.

"We are going to provide a unified platform," Klayko continues. "The combination of Brocade and McData will provide compelling choices and new solutions to address these problems. Together we will provide the interoperability and management unification customers have been asking for and accelerate the delivery of new solutions."

McData will eventually become a wholly owned subsidiary of Brocade, although the two companies will operate as separate businesses until the deal is completed.

Meanwhile, Brocade seems to be steamrolling through the cloud of suspicion cast on it by the ongoing investigation by the SEC into allegations of criminal wrongdoing and securities fraud against former CEO Greg Reyes. The company announced record preliminary third quarter earnings results on the heels of the McData announcement, to the tune of approximately $189 million. The numbers show 3% growth from the second fiscal quarter of this year and 54% growth over the same period in 2005.


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