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Brocade to Buy Foundry Networks

Robert Holmes

Shares of network equipment maker Foundry Networks (FDRY Quote - Cramer on FDRY - Stock Picks) surged Monday after Brocade Communications (BRCD Quote - Cramer on BRCD - Stock Picks) said it will acquire the company in a deal worth $3 billion.

Shares of Foundry jumped more than 30% to $18.15 in recent after-hours trading.

The merger agreement calls for Brocade to pay a combination of $18.50 of cash plus 0.0907 share of Brocade common stock for each share of Foundry's common stock, representing a total value of $19.25 a share.

Brocade said it expects the deal, which should close in the fourth quarter, to boost earnings in its fiscal year 2009, and for the earnings contribution to accelerate in fiscal year 2010.

"We believe the industry is at an inflection point in the way enterprise and service provider networks and data centers are being architected," said Mike Klayko, CEO of Brocade, in a statement. "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."

Brocade said the acquisition has been approved by the each company's board and is subject to approval by Foundry's stockholders, regulatory approval and certain other closing conditions. Brocade said it anticipates it will finance the acquisition through a combination of cash on hand and approximately $1.5 billion of committed debt financing from Bank of America and Morgan Stanley Senior Funding.

Brocade shares dropped 16% in late trading to $7. Among other networking companies, Ericsson (ERIC Quote - Cramer on ERIC - Stock Picks), which reports quarterly results early Tuesday, was higher by 1.1%, Nortel Networks (NT Quote - Cramer on NT - Stock Picks) added nearly 1%, and Alcatel-Lucent (ALU Quote - Cramer on ALU - Stock Picks) tacked on 0.4%. Elsewhere, Cisco Systems (CSCO Quote - Cramer on CSCO - Stock Picks) lost 2%