Which is a Better M&A Target for Dell: CommVault or Brocade? (DELL, CVLT, BRCD, NTAP)

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Are analysts on Wall Street becoming fortune tellers?  Or are they trying to force deals for their investment banking departments?  Actually, the answer may be “yes” to both questions.  It is not that often that we see two research reports from financial analysts calling for one company to make two different acquisitions in a very short period of time.  That is exactly what we are seeing in Dell Inc. (NASDAQ: DELL).  One analyst has recently urged Dell to acquire Brocade Communications Systems, Inc. (NASDAQ: BRCD) and then just today came another call for Dell to acquire CommVault Systems, Inc. (NASDAQ: CVLT).

This morning’s call was from ThinkEquity noting that Dell Inc. (NASDAQ: DELL) should acquire CommVault Systems, Inc. (NASDAQ: CVLT).  The report argues that CommVault’s storage software value is headed north and that Dell is one of its top partners.  One key issue is the recent NetApp, Inc. (NASDAQ: NTAP) partnership.  With Dell’s recent hardware and services focus, CommVault would fit into the former category.  It would also bring all of those revenues in-house rather than in partnerships.  For whatever it is worth, many investors and analysts have considered CommVault as a takeover candidate.  The caveat is that the same logic was there in 2009.

Today’s CommVault speculation came on the same day that Brocade Communications Systems, Inc. (NASDAQ: BRCD) was maintained with a “Buy” rating and with a $7.50 objective price target at Canaccord Genuity.  Paul Mansky’s report noted, “Although the near-term case for M&A appears less likely (if only due to recent insider trades), we continue to view Brocade as the most viable solution to fill major holes in the product line-up, most notably at Dell.”  Mansky’s comments today were more on the fundamental strengths at Brocade today.

It was just two weeks ago that we made odds on a deal discussed by Canaccord Genuity and the reaction was very similar in Brocade at the time.  Brocade had been up more than 5% mid-day on that call, and CommVault is up 6.6% at $39.76 mid-day today.  The difference is that Brocade shares are now close to 10% lower at $6.41.  CommVault shares are down less than 4% from the same period, but that is only because of today’s competing research call.

Unfortunately this is a tie in impact and what would have otherwise been a tie in performance.  Maybe Dell should just acquire both companies.  CommVault has a $1.75 billion market cap and Brocade has a $3 billion market cap.

Dell has plenty of capital to acquire both companies without issuing a single new share that would add to its $30 billion market cap today.  There would even still be enough for Michael Dell to institute a dividend after buying both companies.

JON C. OGG

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