Brocade May Be an LBO Target

Brocade Communications Systems Inc. (NASDAQ:BRCD), a maker of switches for data storage networks, may become a LBO target – according to an unidentified person. Top P.E. firm Blackstone Group (NYSE:BX) is studying a possible transaction.

This may be welcome news to Brocade, who has been looking to sell itself since 2009. But the price could be a sticking point – Brocade’s stock has been on an upswing since it announced its fourth quarter earnings which were boosted by record revenues in its Ethernet business. The results beat analysts’ estimates and reflected the contribution of Brocade’s crown jewel – Foundry Networks Inc, a leader in advanced Ethernet technology.

Erik Suppiger, an analyst at JMP Securities LLC in San Francisco said, “There is a very good opportunity for private-equity investors to make better of use of Brocade and its assets than the current management. The question is whether management is receptive to a price that is attractive to private-equity investors. There are certainly investors that are receptive to prices that are below what management is looking for.”

So far passive investor Elliott Management Corp., a hedge fund, holds 7.5 percent in Brocade. Elliott has a reputation for activism.

Here’s how these stocks are reacting to the news:

Brocade Communications Systems, Inc. (NASDAQ:BRCD): BRCD shares recently traded at $5.90, up $0.07, or 1.2%. They have traded in a 52-week range of $3.18 to $7.30. Volume today was 5,308,061 shares versus a 3-month average volume of 7,846,990 shares. The company’s trailing P/E is 59.00, while trailing earnings are $0.10 per share.

The Blackstone Group (NYSE:BX): BX shares recently traded at $17.10, up $0.42, or 2.52%. They have traded in a 52-week range of $10.51 to $19.63. Volume today was 1,281,418 shares versus a 3-month average volume of 2,811,230 shares. The company’s trailing earnings are $-0.35 per share.