Shares of Foundry Networks Inc. soared Tuesday after Brocade Communications Systems Inc. said it would buy the networking equipment maker for $3 billion, representing a 41 percent premium to Foundry's Monday closing stock price.
Foundry shares shot up $4.42, or 32.4 percent, to $18.08. In the past year, the stock has traded between $10.74 and $21.86.
Meanwhile, shares of networking equipment maker Brocade fell $1.83, or 22 percent, to $6.50. The stock has traded between $5.67 and $9.61 over the past year.
Brocade said Monday it will buy Foundry in a deal that will challenge Cisco Systems Inc.'s dominance in the Internet networking equipment market.
The deal is expected to close in the fourth quarter and add to Brocade's profit in 2009.
In a note to investors, Lazard Capital Markets analyst Ryan Hutchinson reiterated a "Hold" rating for Foundry's stock, citing the "substantial premium" Brocade is offering for its shares.
Hutchinson doesn't think the agreement is currently a material threat to Cisco's LAN, or local area network, switching business.
"We believe any strategic gains from having footholds in storage, LAN switching and carrier routing are likely long-term-focused and incremental gains will likely be immaterial to Cisco," he said.
Meanwhile, Piper Jaffray analyst Troy D. Jensen lowered his rating for Foundry to "Neutral" from "Buy" and raised his price target to $19.25 _ Brocade's per-share purchase price _ in a note to clients.
Jensen called the offering price a "nice premium" over Foundry's $13.66 Monday closing price.
"While demand for Foundry products appear to be ramping, particularly in the U.S., we believe shareholders are better served by accepting the tender offer from Brocade, which significantly exceeds our previous 12-month price target of $14," he said.
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