July 22, 2008 -- (WEB HOST INDUSTRY REVIEW) -- In an effort to bulk up its offerings to better compete with rivals like Cisco Systems, data center networking solutions provider Brocade (brocade.com) announced on Tuesday it has signed a definitive agreement to acquire switching, routing and traffic management solution provider Foundry Networks (foundrynet.com) for around $3 billion.
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Founded in 1996, Foundry Networks considers itself "an innovator and performance leader in data networking solutions for enterprise and service providers," and has around 1,100 employees in offices worldwide.
In its most recent press release, Brocade says the acquisition will bring together "two financially strong companies in complementary technology sectors and enable the combined entity to better address customer needs, as well as the evolution toward converged networks."
Brocade also believes the combined company will be well-positioned to create unique synergies, and to leverage the respective technologies, customer segments, and distribution channels of the two companies to accelerate growth and innovation in key markets.
Both companies compete with industry leader Cisco, which offers a wide range of routing, switching and other networking equipment to handle the requirements of growing web use, including Internet-based video and voice communications.
Under the agreement, Brocade says it will pay a combination of $18.50 in cash plus 0.0907 shares of Brocade common stock in exchange for each share of Foundry common stock, valuing the company at $19.25 per share, or a 41 percent premium over its Monday closing price of $13.66.
Mark Sue, an RBC Capital Markets Analyst, told Reuters in an interview on Tuesday that the deal made strategic sense, but was a bit of a surprise since many had seen Foundry as a potential acquirer because of its relatively strong financial health. However, by teaming up, the combined companies will be able to beef up their product portfolio to more effectively compete with rivals and offer a broader range of technologies to support the rising traffic on the Internet.
"We believe the industry is at an inflection point in the way enterprise and service provider networks and data centers are being architected," says Mike Klayko, CEO of Brocade. "Customers are demanding networking solutions that meet the needs for today and can address the many advances in network convergence that are still ahead. Brocade has taken an important step through this acquisition in developing a networking infrastructure strategy that will serve as the foundation for capitalizing on these dynamic opportunities."
The acquisition has been approved by Foundry's board and is expected to close in the fourth quarter of 2008, subject to shareholder approval.
In May, Brocade joined IBM's new alliance program for independent hardware and software vendors to support industry standards for new enterprise data centers.
