Brocade Flushes Pill

Lets down its guard against hostile takeover as it prepares to gobble McData

January 25, 2007

2 Min Read
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4:20 PM -- Last night's FTC approval of the Brocade-McData deal was expected if not guaranteed. (See Brocade Gets FTC's Blessing.) But Brocade made some other news in announcing the regulatory hurdles had all been cleared. The company said it will terminate its poison pill shareholder rights plan that would prevent a takeover of the company. (See Brocade Kills Poison Pill). How soon? Its 2006 annual report issued Jan. 9 only says that Brocade will terminate the plan "in the near future." Still, the timing is curious.

Companies use poison pills to protect themselves against hostile takeovers and Brocade's has been in effect since 2002. Why get rid of it now when it is about to close a $713 million acquisition of its own? Is Brocade encouraging offers from larger companies? Or do its directors think the poison pill is unnecessary because nobody would want to buy it after the McData deal?

One Wall Street analyst says we shouldn't read too much into the dissolution of the poison pill. He says poison pills are far less common and relevant today than when corporate raiders ran rampant in the 1980s. The analyst does hold out the possibility that Brocade directors are letting shareholders know they won't stand in the way of interested parties, though.

"Does it indicate Brocade's on the market? I doubt it," says the analyst, who asked not to be named. "They have enough on their plate now, especially with the McData integration. But maybe it does send a message to shareholders that Brocade is taking a step to remove that as an overhanging issue if there is any interest."

Just because a company is gobbling a rival doesn't mean it can't see itself as an acquisition target. McData closed its acquisition of CNT in June of 2005, just 14 months before the Brocade-McData deal was disclosed. (See McData Bags CNT for $235M and Brocade Bags McData For $713M.) That was just long enough for McData execs to realize the CNT deal wouldn't save them.Dave Raffo, News Editor, Byte and Switch

  • Brocade Communications Systems Inc. (Nasdaq: BRCD)

  • McData Corp.

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