Brocade Acquiring Foundry Networks for $3 Billion

Brocade announced a definitive agreement to purchase Foundry Networks, Inc., a performance and total solutions leader for network switching and routing. The acquisition will position Brocade as a leading provider of enterprise and service provider networking solutions, with innovative technology and product leadership from the Internet to the heart of data centers.

The acquisition will bring together two financially strong companies in complementary technology sectors and allow the combined entity to better address today’s customer needs, as well as the evolution toward converged networks. Brocade also believes that the combined company will be well-positioned to create unique synergies, and to leverage the respective technologies, customer segments, and distribution channels of the two companies to accelerate growth and innovation in key markets.

"Through this deal, Brocade has now uniquely positioned itself in the networking industry to deliver a leading, alternative solutions portfolio spanning local, metro, wide and storage area networks," said Zeus Kerravala, senior vice president, Global Enterprise Research at the Yankee Group. "The breadth and depth of this portfolio make Brocade a viable option for customers looking for complete networking solutions capable of addressing their constantly evolving and increasingly complex IT challenges."

Under the agreement, Brocade will pay a combination of $18.50 of cash plus 0.0907 shares of Brocade common stock in exchange for each share of Foundry common stock, representing a total value of $19.25 (based on Brocade’s closing stock price on Friday, July 18, 2008 of $8.27). The transaction has an aggregate purchase price of approximately $3.0 billion on a fully diluted basis, and is expected to be accreditive to Brocade non-GAAP EPS in its fiscal year 2009, with non-GAAP EPS accretion expected to accelerate in Brocade’s fiscal year 2010. The acquisition is expected to close in the fourth quarter of calendar year 2008.

The acquisition has been approved by the board of directors of each company and is subject to approval by Foundry’s stockholders, regulatory approval and certain other closing conditions. Brocade anticipates financing the acquisition through a combination of cash on hand (at both companies) and approximately $1.5 billion of committed debt financing from Bank of America and Morgan Stanley Senior Funding, Inc., subject to customary terms and conditions.

"We believe the industry is at an inflection point in the way enterprise and service provider networks and data centers are being architected. Customers are demanding networking solutions that meet the needs for today and can address the many advances in network convergence that are still ahead," said Mike Klayko, CEO of Brocade. "Brocade has taken an important step through this acquisition in developing a networking infrastructure strategy that will serve as the foundation for capitalizing on these dynamic opportunities."

Foundry was founded in 1996 and held its initial public offering in September 1999. The company has continually been an innovator and performance leader in data networking solutions for enterprises and service providers. Foundry has approximately 1,100 employees with operations in all major geographies. In a separate announcement today, Foundry also announced its preliminary financial results for the second quarter of its 2008 fiscal year.

"Brocade and Foundry bring complementary strengths to the table in terms of technology leadership, product portfolio, and the ability to capitalize on key market trends," said Bobby Johnson, Jr., president and CEO of Foundry. "Together we believe we will be a much stronger entity with a compelling value proposition to compete more effectively in, and across, our respective markets."

Here is the letter of of
Brocade’s Michael Klayko to the company’s partners following this announcement:

July 21, 2008

Dear Valued Partner,

It is my pleasure to share the exciting news that today Brocade entered into a definitive agreement to acquire Foundry Networks, a performance and total solutions leader for enterprise and service provider networking. This combination uniquely positions Brocade to further accelerate the innovation and delivery of high-performance, ultra-reliable networks.

It is evident that the networks of today – from the Internet to corporate LANs, to mission-critical data center networks – are undergoing dynamic change and architectural reconsideration. Network traffic and data growth continue to expand at unprecedented levels. You and your customers have increased expectations for performance and reliability and are asking for more choices and for more integrated solutions.

Very few companies can proactively address these changes, from the LAN to the SAN, from the Internet to the Data Center. Following the closing of the acquisition, Brocade will be in a unique position to address the evolution of your next–generation networks with products of the highest performance and reliability, and the most advanced technology for the future.

Your success is our top priority. Our team looks forward to providing you with more comprehensive, end-to-end solutions to help you meet the challenges your customers face in and outside of the data center. I encourage you to engage with your local Brocade representative and team to discuss your specific requirements, to ask additional questions, and to provide feedback.

Best Regards,

Michael Klayko, CEO, Brocade

Brocade conference call to discuss acquisition of Foundry Networks

Presentation: Brocade conference call to discuss acquisition of Foundry Networks