In a major acceleration of its Global Enterprise Data Center strategy, McDATA will acquire Computer Network Technology (CNT).
The all-stock transaction, valued at approximately $235 million in equity and debt (based on net debt as of October 31, 2004), will create a leader in enterprise storage networking. The combination of the companies’ complementary products and services will provide customers with the long-term confidence that their strategic requirements for a storage networking infrastructure needed for increased productivity, business continuity and regulatory compliance will be met.
“The opportunity to deliver a comprehensive, customer-driven storage networking solution to a more diverse enterprise market is compelling,” said John Kelley, chairman, president and chief executive officer, McDATA. “We believe this acquisition furthers our Global Enterprise Data Center strategy of delivering a broadened tiered network infrastructure to our customers and partners that provides access to information anytime, anywhere.”
Under the terms of the agreement, which was approved by both companies’ boards of directors, CNT shareholders will receive 1.3 shares of McDATA Class A common stock for each share of CNT common stock they hold. Upon completion of the transaction, which is expected in McDATA’s fiscal second quarter 2005, McDATA and CNT stockholders will own approximately 76% and 24%, respectively, of the combined company.
Operating income improvement as a result of the merger is estimated to be in the range of $25 million-$35 million annually, beginning in the first full fiscal year after closing the transaction. McDATA anticipates the combined entity will achieve McDATA’s stated standalone non-GAAP operating margin target of 10% by fiscal fourth quarter 2005. One-time cash costs associated with the transaction are expected to be in the range of $40 million-$50 million. To assist in the transition, an integration office has been established with the task of planning for a combined product and services roadmap to best support McDATA’s Global Enterprise Data Center initiative and meet customer and partner needs.
“Through this transaction, it is anticipated that CNT stockholders will have an opportunity for ownership in a company poised to generate solid long-term returns through its leading position in the growing global storage networking infrastructure industry,” said Tom Hudson, chairman, president and chief executive officer, CNT. “We believe our customers and partners will benefit and have their needs met rapidly and efficiently through the combined company’s complete storage networking solution, coupled with greater sales, service and research and development resources. And our employees will have the advantage of becoming part of an organization with a strong and dynamic performance-driven culture.” Mr. Hudson will also join McDATA’s Board of Directors together with one other director of CNT, who will be determined in the future.
Realization of the expected synergies between the two companies in fiscal 2005 is expected to result in an increase to McDATA’s annual per share earnings on a non-GAAP basis. This excludes the net effects of any one-time charges related to this transaction as well as the net effect of amortization for intangible assets, amortization of deferred compensation and tax valuation allowances. These expenses, which will increase as a result of the transaction, will be included in McDATA’s per share earnings on a GAAP basis. .
The transaction is subject to certain closing conditions, including regulatory approval and approval by McDATA and CNT shareholders. The transaction is expected to qualify as a tax-free exchange.
Murdok | Breaking eBusiness News
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