Data center solutions provider Brocade Communications Systems has updated its offer to acquire Foundry Networks, agreeing on a purchase price of $16.50 per share in cash.

 

The revised agreement increases the value of the deal to $2.6 billion.

 

Analysts say the acquisition will reinforce Brocade’s (News - Alert) ability to successfully compete with Cisco Systems’ dominance in the Internet networking equipment market.

 

In a statement issued Friday, San Jose, California-based Brocade said Foundry’s stakeholders will vote on the proposed deal in December. The proposal is supported by the network equipment maker's board of directors.

 

The two companies originally entered into an agreement on July 21, in which Brocade would pay $19.25 per share, or $3 billion. Effects of the credit crunch forced Brocade to lower its bid.

 

Under terms of the new agreement, Associated Press reported, Foundry's shareholders may also receive proceeds of the sale of the company's auction rate securities portfolio if the company is able to liquidate those assets before the buyout is completed.

 

That money — up to $50 million — would be distributed to Foundry shareholders through a dividend.

 

Brocade expects to finance the acquisition from various financing sources, including cash on hand at both companies and the net proceeds from a $1.1 billion term loan facility.

 

"We believe the combination will provide a number of strategic and financial benefits that we expect will be well-received by the customers of both companies," said Mike Klayko, CEO of Brocade, in a statement. "This will help to solidify Brocade's position as a proven, high-performance networking leader for today's most demanding, data-intensive organizations."

 

The companies expect to close the transaction in late December 2008, subject to the satisfaction of customary terms and conditions.

 

Brocade is a provider of data center networking solutions that help organizations connect, share, and manage their information.

 

Foundry's customers include Internet service providers (ISPs), metro service providers, and enterprises.