Computer storage firm Brocade Communication Systems Inc. announced on Tuesday that it would acquire its rival McData in a stock swap.

The California-based company acquired McDATA, a leading computer storage firm, for approximately $713 million. The acquisition would enable Brocade to compete more effectively against larger rivals such as Cisco systems. For every McDATA class A stock, the shareholder would receive 0.75 of Brocade common stock.

"Today marks an important milestone in Brocade's continued success as a strategic provider to the enterprise customer...We believe this is a strategic combination that will benefit our customers and create value for our combined stockholders, said Michael Klayko, Brocade CEO.

Brocade shares dropped after the announcement, with some believing the company overpaid for the smaller rival. In the latest quarter McData missed analysts' earnings forecasts. McData's earning per share were $0.02 compared to an earnings guidance of $0.04 to $0.06.

We believe this combination is a win for our customers and our investors, said John Kelley, McData chairman, president and CEO. For our customers, it provides the investment protection and a clear path to next generation data center products and technologies. For our stockholders, it presents an attractive premium and the ability to participate in the combined company's future value creation potential.

The firm paid $13.9 million for the related acquisition costs, including an investigation about the takeover as well as stock compensation. The acquisition was expected to generate growth on a non-GAAP EPS basis in the further quarter. The expected synergy was expected to be $100 million.

California