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$3 Billion Brocade-Foundry Networks Merger Has Eye On Cisco

In acquiring switch maker Foundry, Brocade is creating a networking powerhouse that could become a much stronger rival to Cisco.

Brocade Communications Systems on Monday said it has agreed to buy Foundry Networks in a deal valued at $3 billion. The acquisition has the potential of making Brocade a stronger competitor against networking powerhouse Cisco.

Under the deal, Brocade, which makes software and switches used to connect corporate servers and data centers, would pay $19.25 in cash and stock for each share of Foundry. The acquisition is expected to close in the fourth quarter of this year, pending approval from Foundry stockholders and regulators.

Foundry makes switches and other equipment for building Internet-based networks, a market dominated by Cisco. By joining Brocade, Foundry is helping to create a combined networking company that could become a much stronger rival to Cisco.

"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," Bobby Johnson Jr., president and chief executive of Foundry, said in a statement. "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."

Foundry, founded in 1996, has about 1,100 employees and operations in the major regions of the world. The company held its initial public offering in September 1999. Foundry last year reported $607.2 million in revenue and $81.1 million in profit. Brocade reported $1.2 billion in revenue and $76.9 million in profit.

Brocade and Cisco have recently launched switches aimed primarily at one job: virtualization. Cisco in January introduced the Nexus as the successor to the networking company's most successful product, the Catalyst 6500. The Nexus aims at virtualizing the network interface cards, host bus adapters, and cables that connect servers to networks and remote storage.

Brocade the same month introduced the DCX Backbone, a switch that does much the same as the Nexus, namely consolidate SAN and LAN into a single network, and virtualize NICs that connect them to virtual servers.

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