Shares of data-storage specialist Brocade ( BRCD) rallied almost 10% in early trading Thursday after the company lowered the price of its acquisition of Foundry Networks ( FDRY) 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.
Brocade hopes its acquisition of Foundry's ethernet technology will put it in a better position to compete with Cisco ( CSCO) and Juniper Networks ( JNPR). Foundry was planning to hold a shareholder meeting to vote on Brocade's offer Wednesday, although this has now been postponed until Nov. 7. Brocade has already stated its desire to close the deal in the fourth quarter.