Brocade: UBS Skeptical That The Company Will Be Acquired

Brocade (BRCD) shares this morning are giving back some of yesterday’s takeover rumor driven 11% gain. One reason for the reversal: UBS analyst Nikos Theodosopoulos this morning writes that he finds a “low probability” of the company being acquired.

The UBS analyst said Brocade could be a takeout candidate given its modest valuation – it has a $3.5 billion enterprise value – but he thinks its low-growth profile and troubled integration of its Foundry Networks acquisition make it “a low probability deal.” He says that IBM, Hewlett-Packard, Juniper and Dell all would “unlikely” to bid for Brocade. Oracle (ORCL), he says, is a “wild card.”

• HP, he says, considered buying BRCD before buying 3Com, but given that deal and subsequent acquisitions of 3Par and ArcSight, HP now seems like an unlikely buyer.
• JNPR, he says, is an unlikely bidder given “incompatibility” on a growth and margin basis.
• Dell, he says, is more likely to partner than acquire.
• Oracle, he says, is a wild card, noting its history of “seeking broken firms with good technology.”

Theodosopoulos keeps his Neutral rating and $5.50 target on the stock.

BRCD this morning is off 17 cents, or 2.7%, to $6.09.