9 In re Extreme Networks, Inc. Securities Litigation, Case No. 15-cv-04883-BLF, 2018 WL 1411129 (N.D. Cal. Mar. 21, 2018) - Expected Synergies Following Acquisition, and Revenue Growth from Partnership Extreme Networks, Inc. (“Extreme”) develops and sells network infrastructure equipment. Between September and October 2013, Extreme announced and closed its acquisition of a competitor, Enterasys Networks, Inc. (“Enterasys”). At the time of the acquisition, Extreme stated that it “planned” to reduce costs and expens- es by $30 million to $40 million after fully integrating Enterasys, that these synergies were expected to be realized over 12 to 24 months, and that “[t]here would be no disruption in customers’ ability to grow and operate their networks.” In November 2013 and through 2014, Extreme stated that its integration efforts were on track or ahead of plan and that its integration of Enterasys’s sales force was complete, and reaffirmed its target for savings of up to $30 million to $40 million per year. In January 2015, however, Extreme disclosed that it had “considerable work to do going forward” to complete the integration. At the same time, Extreme emphasized its partnership with Lenovo Group LTD. (“Lenovo”). In August 2014, Extreme stated that the Lenovo partnership would “generate significant revenues” for Extreme beginning in the fourth quarter of 2015 and beyond. In October 2014, Extreme’s CEO said that he expected double-dig- it revenue growth by June 2015 as a result of Extreme’s partnership with Lenovo. Throughout 2014, Extreme’s officers reaffirmed their “commitment” to achieve 10% revenue growth and operating margins by June 2015. In January 2015, however, Extreme announced that it would not achieve double-digit revenue growth by June 2015, but nonetheless explained that its partner- ship with Lenovo had strengthened. On April 9, 2015, Extreme preannounced that it would miss its earnings estimates, and its stock price fell by approximately 25% from $3.24 to $2.50 per share. In May 2015, Extreme’s new CEO stated that Extreme had “zero visibility into Lenovo.” Investors filed a securities class action against Extreme and its officers, asserting claims under Sections 10(b) and 20(a), and Rule 10b-5 of the 1934 Act. In a consolidated amended complaint, plaintiffs relied on six confidential witnesses in alleging that defendants made misrepresentations concerning the success of Extreme’s post-acquisition integration with Enterasys and Extreme’s partnership with Lenovo. Defendants moved to dismiss the consolidated amended complaint, which the court granted in part and denied in part. As to defendants’ initial statements concerning their plan to integrate Enterasys, their expectation that there would be no disruption to customers, and progress toward achieving savings, the court held that plaintiffs alleged no facts establishing that such statements were false. With respect to defendants’ positive statements con- cerning the status of Extreme’s integration of Enterasys, however, the court held that plaintiffs adequately plead- ed falsity and scienter, in light of allegations based on confidential witness accounts that defendants were intimately involved in day-to-day operations surround- ing the integration and that employees had voiced concerns to defendants concerning the inadequacy of Extreme’s integration. Moreover, the court held that plaintiffs’ allegations based on confidential witnesses supported a strong inference of scienter that defen- dants were apprised of the integration issues. CALIFORNIA DISTRICT COURT CASES