Emulex rejects Broadcom's $US925M revised buyout offer

Broadcom promptly walks away from any deal

Network components manufacturer Emulex Corp. today announced that its board of directors had unanimously rejected Broadcom Corp.'s revised cash offer to acquire it for US$US11 per share and recommended that shareholders not tender their shares into the offer. Broadcom, which had already indicated this latest offer would be its last, said it is dropping all efforts to acquire Emulex.

"We believe it is in the interest of each company's stakeholders to complete a transaction expeditiously or to move on," Broadcom CEO Scott A. McGregor said in a statement. "Although we were unable to negotiate an expeditious and friendly transaction at a price that makes sense to us, given the expectations set by the Emulex board, there are other value-creating alternatives that we will now turn our attention to as we position Broadcom to capitalize on the emerging opportunities in the converged enterprise networking markets."

Broadcom did not hide its disdain for the Emulex decision: "Because of Emulex's rejection, coupled with its previous adoption of a poison pill and other revisions made to its corporate bylaws in January 2009, Broadcom does not expect that the conditions to close its tender offer will be satisfied by July 14, 2009, and Broadcom does not intend to waive any of these conditions," the company said in a statement.

The "poison pill" Broadcom referred to was a change to Emulex's bylaws in January aimed at stopping any hostile takeover attempt by giving Emelex shareholders the right to purchase additional stock in case any company or group acquired more than 15% of its shares. Broadcom had indicated it wanted to buy out Emulex as early as December 2008.

This is the second time Emulex's board advised stockholders to ignore a Broadcom merger proposal. In May, the board rejected an offer of $US9.25 per share, or about $US764 million in cash, saying it undervalued the company and its long-term earning potential. The latest all-cash offer was valued at $US925 million.

Emulex's board essentially said the same thing about the Broadcom offer as it did in May, adding that the deal was "not in the best interests of Emulex and its stockholders."

"We unanimously believe Emulex will deliver significantly more value than Broadcom's revised offer through the Company's rapidly developing converged networking business and solid execution in our host server and embedded storage markets," said Paul Folino, Emulex's executive chairman. "Consistent with the Board's fiduciary duties, we would, of course, give full consideration to a bona fide offer from any party that reflects the full value of the company."

Jeff Benck, Emulex's chief operating officer, said in an earlier interview with Computerworld that Broadcom's offer did not take into account Emulex's potential with regard to the emerging converged network adapter market, where IP and Fibre Channel protocols can work together across the same networks, thereby reducing overall management requirements.

Emulex has about 850 employees and primarily makes Fibre Channel host bus adapters for attaching application servers to storage-area networks as well as network interface cards for attaching network-attached storage systems. It also developed host bus adapters based on the Internet SCSI (iSCSI) and Fibre Channel over Ethernet (FCoE) protocols.

The company sells to large equipment manufacturers such as IBM, EMC Corp. and Hewlett-Packard Co. for use in storage subsystems. Emulex's chief competitors are Brocade Communications Corp., QLogic Corp. and LSI Corp.

Emulex also announced preliminary fourth quarter financial results, saying that it expects to report revenues of approximately $US78 million to $US79 million, at the high-end of its previous projection of $US73 million to $US80 million.

Emulex CEO Jim McCluney said the fourth-quarter earning projections underscore the success of the company's strategic initiatives. "We recently secured two new tier-one 10Gb/s Ethernet OneConnect Converged Network Adapter design wins, adding to the twelve wins that we disclosed in May. In recent weeks, we also secured two new OEM design wins for our LightPulse Fibre Channel Host Bus Adapters. These new design wins further validate our projections of $US600 million in revenue and $US1.45 in non-GAAP earnings per share in fiscal year 2012, and reinforce the additional upside opportunities available to the company," he said.

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