This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

5 Technology Deals That May Need to Die (Update 1)

Stocks in this article: HPQNTAPJNPRBRCDIDCC

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

2. Brocade Communications

Since putting the company up for sale in 2009, Brocade has long been rumored as a takeover target for a private equity firm or strategic acquirer like NetApp, Dell, HP or Oracle, among a host of tech players. Quatalyst Partners tech banker Frank Quattrone has reportedly been shopping the maker of switches for data-storage networks for years, but it increasingly looks like Brocade will have to go at it independently in the nearterm.

In recent weeks shareholding data and reports from Bloomberg and DealReporter signal that prospective buyers are vacating Brocade as an acquisition target. Because prospective private equity buyers like the Blackstone were reported to walk away from the bid because the market cap had swelled above $2.5 billion.

After news of a deal breakup came in late February, FBN Securities analyst Shebly Seyrafi nevertheless raised his price target for Brocade shares to $6.50 from $5.50 on the company's first quarter earings and second quarter outlook, noting ethernet sales and the benefits of an over 50% debt reduction. "A smaller M&A premium is therefore indicated for Brocade ," wrote Seyrafi of his raised price target.

Meanwhile, Elliott Management sold over 9 million Brocade shares between Nov. 3 and Jan. 12, according to filings with the Securities and Exchange Commission, essentially removing that firm as a potential acquirer.

Prior to private equity takeover reports, long-rumored strategic acquirers of Brocade like Dell and IBM fell by the wayside as they cut other deals in the networking space in 2011. Nevertheless, in the most recent quarterly filings, some hedge funds piled into Brocade's stock in the fourth quarter, a sign there may still be a whiff of speculation left.

Highbridge Capital Management bought over 2.3 million Brocade shares, while Millennium Management and Two Sigma Investments build 1 million share-plus sized stakes in the quarter. Meanwhile, Caxton Associates, Delaware Management and Pyramis Global added roughly 1 million shares to their holdings. For Highbridge, Brocade is now the funds third largest holding, according to its latest filing.

Brocade's shares have risen nearly 10% in 2012, adding to a fourth-quarter gain of more than 25% as earnings recovered and sale speculation intensified. Nevertheless, Brocade's shares are still off 12% in the last 12 months.

In 2011, Brocade saw its profits fall by over 50% to just over $50 million, while revenue grew over 5% to $2.1 billion. In its most recent quarter ended in January, Brocade posted a $58.6 million profit though.

Brocade is expected to record $2.2 billion in sales and $87.9 million in profit in 2012, according to consensus estimates of analysts polled by Bloomberg, who give the company's shares a price target of $6.61. Currently, 6 analyst rate Brocade's stock a "buy," while 22 rate it a "hold" and 3 give it a "sell."

Other large Brocade shareholders include Franklin Resources, Fidelityand Vanguard, each with over 5% stakes in the company's shares.

For more on Brocade, see stocks under $10 setting up to trade higher .

5 of 6

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,817.90 +7.84 0.04%
S&P 500 2,069.41 +5.91 0.29%
NASDAQ 4,754.8920 +41.9220 0.89%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs