Every company worth its salt — and many others besides — has a contingency plan. The fact is, there’s a Plan A, there’s a Plan B, and sometimes there are Plans C, D, and E.
The world rarely conforms to our wishes, and we must adapt accordingly.
So, it’s no surprise that Mike Klayko, CEO of Brocade Communications, now proclaims that his company is destined for greatness as an independent entity. With no industry giant willing or able to buy Brocade, at least not for an amount to the liking of Klayko and the company’s board of directors, the storage-networking vendor’s chieftain must pretend that independence was the plan all along.
I have only read his words, not heard or seen him speak them, so I can’t say whether he’s a good actor. However, nearly everybody believes that Brocade was for sale, and that Klayko, realizing that his company was looking like a jilted bride at a marriage altar just off the Las Vegas Strip, had to project an alternate reality.
Said the Brocade CEO of the acquisition speculation, which was widely believed to have emanated from the company’s investment-banking agent, Qatalyst Group:
“That’s just wrong. Why would we want to go ahead and do that when we have never been in a better position than we are today?”
Oh, I don’t know. Could it be because the company was afraid the consolidation wave would ebb and never come back ashore?
That issue aside, could Brocade have been for sale previously, but is no longer on the block? Not according to the company’s CEO:
“I never was actively shopping the company. When there’s misinformation we have to correct it. . . .”
“We’ve got a very bright future. We’ve spent the last five years planning and putting all the different pieces in place to execute on a very, very large infrastructure build out opportunity.”
Be that as it may, we could have a lot of fun parsing Klayko’s words. For example, perhaps he wasn’t “actively shopping the company,” but others, including Brocade’s investment banker, were doing the job for him.
Those finer distinctions probably don’t matter. Brocade might not be for sale, but it could still be bought. Similarly, the company still has OEM relationships with IBM and Dell, even if its relationship with Hewlett-Packard, which recently bought networking vendor 3Com, is suddenly fraught with uncertainty.
Broadpoint AmTech analyst Brian Marshall retains a sanguine view of Brocade, both as a takeover target and as an independent player.
“I think Oracle would be interested. Dell, Juniper, all those guys. So I definitely think it’s a strategic asset and people are probably kicking the tires there. At the end of the day, let’s look at it on a pure fundamental basis. This name’s cheap.”
For investors, it’s always wise to evaluate a publicly traded company primarily, if not exclusively, on the basis of its fundamentals. Everything else is a speculative sideshow.