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

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