Brocade deal odds slim on 3Com buyout; Enerflex considers bid; Playboy shares soar on rumors

By Cristal Cody

Tupelo, Miss., Nov. 12 - Shares of 3Com Corp. jumped on Thursday to catch up to the $2.7 billion acquisition offer made a day earlier by Hewlett-Packard Co.

The deal also sent shares of Brocade Communications Systems Inc. tumbling 12.65% as hopes fade for any deal plans with Hewlett-Packard, an analyst said Thursday.

Also on Thursday, Toromont Industries Ltd. said that it plans to continue with a C$597 million formal bid for Enerflex Systems Income Fund despite a stall in negotiations with the company's board. The stock continued to trade above the offer as investors hope for a higher bid, an analyst told Prospect News.

Meanwhile, shares of Playboy Enterprises Inc. soared 42.31% Thursday on reports that the media company is in discussions for a sale to Iconix Brand Group, Inc. The question, though, is whether Playboy founder Hugh Hefner is ready to sell, an analyst told Prospect News.

On Wall Street, stocks took a slight hit.

The Dow Jones Industrial Average lost 93.79 points, or 0.91%, to close at 10,197.47.

The Standard & Poor's 500 index slipped 11.27 points, or 1.03%, to 1,087.24, and the Nasdaq Composite index fell 17.88 points, or 0.83%, to 2,149.02.

Brocade gets left out

Hewlett-Packard said after the market closed on Wednesday that it will acquire 3Com for $7.90 a share.

Shares of 3Com closed up $1.77, or 31.11%, at $7.46 on Thursday.

Palo Alto, Calif.-based computer maker Hewlett-Packard expects the deal to expand its Ethernet switches and network routers products and increase its presence in China, where 50% of 3Com's sales originate.

Marlborough, Mass.-based 3Com provides products that include routers, switches and security systems for network equipment.

"We believe that HP is making a sound strategic move by acquiring 3Com," Keith Bachman, an analyst with BMO Capital Markets Corp., said Thursday in a research note released to Prospect News. "HP will use its existing cash balance to close the deal, which we believe will be of little impact to HP's balance sheet."

The acquisition is expected to close in the first half of 2010.

The deal should end any rumors for a Hewlett-Packard-led buyout of Brocade, a San Jose, Calif.-based data networking equipment provider, Bachman said.

Shares of Brocade lost $1.17, or 12.65%, to close at $8.08 on Thursday.

"We have suggested numerous times that HP would not buy Brocade, and this deal has to end the rampant enthusiasm bulls have about HP buying Brocade," Bachman said. "Moreover, we believe that HP will have less interest in working with Brocade on an OEM [original equipment manufacturer] or even partnership basis."

Hewlett-Packard shares fell 30 cents, or 0.60%, to close at $49.70.

Toromont takes hostile step

Toromont said in a statement on Thursday that it intends to bid for all the outstanding trust units of oil and gas equipment supplier Enerflex.

Under the terms, Toromont will pay Enerflex unitholders their choice of C$13.50 a unit in cash or 0.5098 of a share of Toromont and C$0.05 cash per unit.

Shares of Enerflex continue to trade above the offer and closed up 0.78% at C$14.15 on Thursday.

"We've seen this movie a thousand times," Dana Benner, an analyst with Thomas Weisel Partners Group, Inc., told Prospect News on Thursday. "The market will hope for another bid, so we'll see."

Concord, Ont.-based Toromont, a leading Caterpillar dealership operator and gas compression system provider, said it will pay up to C$300 million in cash and issue up to 11.3 million shares to complete the deal. The offer represents a premium of 34.1% to the closing price of Enerflex units on Oct. 16, when Toromont first made the proposal.

"Since that time, Toromont and Enerflex have not made any meaningful progress towards a negotiated transaction, which has led to Toromont's announcement of its intention to make a formal take-over bid," Toromont said in the statement.

Enerflex cautioned investors in its response on Thursday that no formal offer has been made yet. Calgary, Alta.-based Enerflex said in the statement that the special committee formed after Toromont made the proposal in October is "advancing and is on track with its process of considering Toromont's proposed transaction as well as alternatives."

Toromont said holders of about 25.8% of outstanding Enerflex units have agreed to vote for the transaction, including its own 8.8% stake combined with about 17% of units held by other Enerflex investors.

The offer is expected to expire in early January.

Toromont shares lost 2.81% to close at C$26.31 on Thursday.

Sale talk engulfs Playboy

Chicago-based Playboy said in a statement in response to inquiries on Thursday that it had no comment on the sale rumors.

Representatives from New York-based Iconix, which owns and licenses clothing brands such as Candie's, Joe Boxer, Rampage and Mossimo, were not immediately available.

David Miller, an analyst with Caris & Co., told Prospect News that the decision to sell belongs to Hefner.

"The idea of Playboy for sale has been around for about a year, and now here we go again," Miller said. "There could be a deal, but the question is valuation and if Hugh Hefner is willing to sell at $3.61 a share. I doubt it, but we'll see."

Playboy shares opened at $2.82 on Thursday and quickly rose throughout the day.

Shares set a new 52-week high of $4.75 in trading before the stock closed up $1.21, or 42.31%, at $4.07 on Thursday.

Iconix shares slipped 39 cents, or 3.21%, to $11.76.

Mentioned in this article:

3Com Corp. Nasdaq: COMS

Brocade Communications Systems, Inc. Nasdaq: BRCD

Enerflex Systems Income Fund Toronto: EFX-UN

Hewlett-Packard Co. NYSE: HPQ

Iconix Brand Group, Inc. Nasdaq: ICON

Playboy Enterprises Inc. NYSE: PLA

Toromont Industries Ltd. Toronto: TIH

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