The pending acquisition by McData Corp. (Nasdaq: MCDTA) of Computer Network Technology Corp. (CNT) (Nasdaq: CMNT) for $235 million appeared to be on the fast track last month. Today, it hit a speed bump.
Just hours before the release of last quarter's figures, CNT delayed its earnings report and announced it will probably have to restate earnings for three quarters of 2004 (see McData Bags CNT for $235M and CNT Postpones Earnings Call).
Although the deal, announced in January, cleared two regulatory hurdles in February, CNT indicated it might not face smooth sailing. CNT postponed reporting earnings so it can reconcile its cost of finished goods between the general ledger and its material requirements planning (MRP) system. The adjustments would likely increase cost of goods sold by around $2 million for the nine months ended October 31, 2004, and widen CNTs loss per share of $3.58 by another $0.07 over that period.
CNT provided little detail behind the changes in its release today, and McData did not respond to inquiries by press time. Gail Greener, CNTs marketing VP, says it would be very difficult to comment at all, until after the issues are resolved. She did say the differences were found during a routine audit by CNT and not by McDatas due diligence.
Last month, McData received Hart-Scott-Rodino antitrust and preliminary Securities and Exchange Commission (SEC) approval earlier than expected (see McData Clears Antitrust Hurdle and McData Wraps Rocky Year). During McDatas earnings call two weeks ago, CFO Ernie Sampias said he expected the deal to close by the end of July.