Brocade purchases McData in $713 million all-stock deal

BROOMFIELD – One year after Sun Microsystems Inc. announced its intentions to purchase Louisville-based Storage Technology Corp., another Silicon Valley data storage company staked a claim on another home-grown company.

Brocade Communications Systems Inc. (Nasdaq: BRCD), a San Jose, Calif. network storage company, will buy Broomfield-based McData Corp. (Nasdaq: MCDTA; MCDT) in an all-stock transaction worth about $713 million.

The transaction is expected to be completed by first quarter 2007.

Following the closing, Brocade’s executive management team will continue to serve in their current roles. John Kelley, McData’s chief executive officer, will serve as an adviser to Brocade. Two McData directors are expected to join the Brocade board of directors upon closing.

Brocade will retain its name and corporate headquarters in San Jose, and McData will become a wholly owned subsidiary of Brocade.

Brocade employs 1,400 worldwide; McData has about 1,000 employees worldwide, 600 of whom work at its Broomfield headquarters.

Brocade spokeswoman Leslie Davis said it was “premature to speculate on the possibility of a work force reduction.” Until the deal closes Brocade and McData will be acting as separate companies,” she said. “Through the integration process, which will begin shortly, we will be evaluating the joint company.”

McData officials said only the purchaser could comment on what the deal might mean to its employees.

During the Aug. 8 conference call discussing the transaction, no analysts broached the subject of potential layoffs, but Frank Timmons of Robert Baird asked about how the companies would identify “key employees” to keep.

Neither Kelley nor Brocade Chief Executive Mike Klayko would talk about specific employee numbers, but each discussed combining the two corporate cultures.

Klayko said, “Really at the end of the day, people are really important in any business. So we’re going to sit down, we’re going to do this right, and I think we will put some thought behind it, and we will come away with one culture when it is all said and done.”

Mike Karp, a senior analyst with Boulder-based Enterprise Management Associates who follows the data storage industry, thinks there will be layoffs on both the McData and Brocade side. “There’s an awful lot of redundancy between the two product lines,” he said.

But Karp focused on the positive side, saying this type of acquisition is very common in the high-tech world. “It’s like a snake shedding its skin. What comes out very frequently is you see a number of small, interesting companies come out of it.”

Talented employees should not have trouble finding new jobs, he continued. “If I were (networking giant) Cisco, I’d just put a recruiting truck out there in the parking lot right now. There’s some dynamite talent at McData. Good people tend to rise, and they are fairly easy to identify.”
Also on Aug. 8, McData named Adrian Jones senior vice president of worldwide sales and services team. He replaced Gary Gysin, who left the company.

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