Shareholders Sue to Block CNT Takeover

Investors look to prevent its acquisition by McData.
By Bill Snyder ,

Shareholders of

Computer Network Technology

(CMNT)

have filed a lawsuit aimed at blocking McData's

(MCDTA)

takeover of their company.

The lawsuit against Computer Network Tech -- filed in a Minnesota state court -- also seeks unspecified damages, and targets the company and its entire board of directors, who are alleged to have breached their fiduciary duties.

CNT, as the company is usually called, said the suit has no merit and it plans to defend the legal action.

The news didn't upset Wall Street very much; in recent trading shares of McData were off 7 cents, or 1.6%, to $4.25, while CNT shed 3 cents to $5.43 a share.

McData quickly won regulatory approval for the deal last month. The acquisition still needs approval from shareholders of both companies, and is expected to close during the second quarter.

If approved, McData will pay $235 million in stock for CNT and assume $134 million in convertible debt.

McData's core products are switches used for storage area networking, a market that has grown increasingly competitive. With about 1,000 employees and $350 million in annual revenue, CNT focuses on related areas.

When the deal was announced, McData management said it should be accretive in the second half of 2005.

Commenting on the deal at the time, Daniel J. Renouard of Baird U.S. Equity Research, said: "We believe

Cisco's

(CSCO) - Get Report

entry into the marketplace is the primary impetus behind this transaction. Given the risks associated with combining two large organizations and ongoing competitive pressures, our initial reaction suggests some caution is appropriate."

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