There have been rumors for years that Hewlett-Packard might buy Brocade, and they intensified today after a Wall Street Journal report that Brocade has put itself up for sale.
The WSJ cited unidentified sources and obviously none of the companies named would comment, but the article mentioned HP and Oracle as potential bidders. Wall Street and storage industry analysts who follow Brocade say HP is the likely buyer if Brocade gets acquired. HP has a long-term relationship with Brocade, and Oracle is currently trying to complete its Sun deal and integrate that company.
“It is possible that HP is looking to buy Brocade,” Wedbush Securities analyst Kaushik Roy said today. Roy said he “would guess” Brocade would go for about $11 per share or between $4 billion and $5 billion.
However, there is likely a good reason why HP hasn’t already acquired Brocade. If it did, Brocade would probably lose a good piece of its business because its large OEM customers EMC and IBM wouldn’t be so enthusiastic about selling switches owned by their competitor HP.
“If HP buys Brocade, they would in reality pay a much higher premium because the future revenue forecasts would be revised downwards,” Roy said. “Brocade is an OEM business. EMC is likely to move from Brocade more to Cisco [for Fibre Channel switches] and IBM is likely to move towards Juniper on Ethernet.”
In a note to clients today, Stifel Nicolaus Equity Research analyst Aaron Rakers wrote that HP makes most sense as a Brocade suitor but threw a few others into the mix.
“We find it a bit interesting that the [WSJ] article is not including names such as
IBM and Juniper,” Rakers wrote.
Enterprise Strategy Group analyst Bob Laliberte said when he heard about the WSJ story, “My first thought was that HP would be a potential suitor. When you look at a company the size of Brocade and what they offer, you’re down to IBM, HP, Oracle, maybe Dell. I don’t think you’ll see EMC or Cisco buy them.”
A Cisco-Brocade deal probably wouldn’t clear anti-trust regulation, and EMC is too close to Cisco to buy Cisco’s chief switch competitor.
A Brocade acquisition by anybody is still a big if at this point. The WSJ story said no deal is imminent, and it sounds like Brocade could just be shopping to see how much interest is there.
One thing for sure is that Brocade’s stock price is soaring. It opened at $8.60 today, more than 12% above its Friday closing price of $7.65.