Brocade Boosted By Revised Foundry Deal

Shares of data-storage specialist Brocade (BRCD Quote) rallied almost 10% in early trading Thursday after the company lowered the price of its acquisition of Foundry Networks (FDRY Quote) by $400 million.

The companies had agreed to a $3 billion purchase price in July, but announced late Wednesday that the figure had been lowered to $2.6 billion.

Under the revised deal, Foundry shareholders will receive $16.50 of cash for each share, compared with the initial $19.25 offer of cash and Brocade stock.

The news boosted both firms' stock, with Brocade shares rising 32 cents to $3.85. Shares of network-equipment maker Foundry rose nearly 19% to $15.42.

Brocade landed a $1.2 billion loan to help fund its Foundry acquisition earlier this month, although both companies' shares have struggled against a backdrop of uncertain tech sector spending and tightening credit markets. Compared with their prices when the acquisition was announced, Brocade has fallen almost 30% and Foundry has lost 45%.

In addition to the $1.2 billion loan, Brocade had also planned to raise up to $400 million in additional financing.

At least one analyst feels that the revised Foundry purchase price is a shrewd move at a time of heightened economic tension.

"The agreement gives Brocade a $400 million discount, and alleviates the need for Brocade to place the additional $400 million debt in tightened credit markets at unfavorable rates," wrote Jayson Noland, an analyst at R.W. Baird, in a note Wednesday.

Noland nonetheless maintained his neutral rating on Brocade, partly because of the challenges of integrating two large tech companies.