Brocade Seen Gaining 32% on Deal After CEO Exit

Brocade Communications Systems Inc., which has been trying to sell itself for more than two years, is a step closer to unlocking a 32 percent gain for shareholders now that its chief executive officer is on his way out.

The maker of computer switches for data-storage networks said last week that Michael Klayko will step down after more than seven years as head of Brocade, which has disappointed investors as it struggled to integrate an Ethernet business it acquired in 2008. Brocade’s stock fell this month to the lowest price relative to free cash flow in three years, and yesterday the shares were still cheaper than 90 percent of similar-sized computerstorage firms, according to data compiled by Bloomberg.

Even after working with Frank Quattrone’s Qatalyst Partners to find a buyer, Klayko failed to come to terms on a deal, and ZK Research said the CEO’s departure might help smooth negotiations with suitors. Private-equity firms could be attracted to the cash flow generated by the $2.7 billion company’s main storage business, according to Robert W. Baird & Co., while JMP Group Inc. said Dell Inc. also may be among suitors. Wunderlich Securities Inc. said Brocade could fetch $7.75 a share, 32 percent more than yesterday’s closing price.

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