3rd UPDATE: Emulex Board Rejects Broadcom's Takeover Bid
May 04 2009 - 3:36PM
Dow Jones News
Emulex Corp.'s (ELX) board rejected a $9.25-a-share takeover bid
from Broadcom Corp. (BRCM) on Monday in what many expect is the
opening round of a lengthy acquisition battle.
Emulex, which makes the networking technology used to connect
the servers and equipment in company data centers, said the roughly
$764 million offer undervalues its long-term prospects. The company
added it has "significant new unannounced design wins," with top
manufacturers, which are expected to be multi-million dollar,
multi-year deals, said President and Chief Executive Jim
McCluney.
Emulex shares, which have traded above Broadcom's offer price
since the offer was made public, were recently up 2.8% to $10.66,
suggesting investors expect a higher bid.
Broadcom shares were recently up 2.2% to $23.57. The company
said it is currently evaluating its options in regards to the
rejected offer.
Analysts expect Broadcom to come back with a revised bid.
"There is definitely room for them to raise the offer," said
Robert W. Baird analyst Tristan Gerra, adding they could pay up to
"a few dollars" more per share. "This is pretty much what we have
expected."
Broadcom can likely afford to raise the bid and still have the
acquisition add to earnings within the first year, Gerra said.
Meanwhile, Stifel Nicolaus analyst Cody Acree said Broadcom may
raise the price into the $12- to $13-a-share range.
A deal for Emulex would allow Broadcom to sell another
technology used in storage networking, known as fibre-channel,
which is currently the standard in data centers. Emulex and rival
Qlogic Corp. (QLCG) dominate this market, but most expect that
fibre-channel products eventually will be integrated with the
ethernet networking gear Broadcom sells.
While ethernet likely will replace fibre-channel technology in
storage networks, companies are moving to sell products that
combine the two technologies.
And the ability to sell both ethernet and fibre-channel could
give Broadcom a strategic advantage when the two technologies
converge.
Emulex said it has already released a product that combines
ethernet and fibre-channel and has inked deals with major
manufacturers to implement it.
"We are displacing (Broadcom) at some of their most major
customers," said McCluney, adding "We are arguably a year ahead of
the rest of the market."
However, the company hasn't yet made these design wins
public.
In a letter to Broadcom's board, Emulex's board said the offer
lowballs the company, particularly regarding network convergence
technology, and that it is timed to take advantage of the company's
depressed stock price. From August to early March, shares tumbled
from $14 per share to $4.50 per share, a 10-year low.
Broadcom approached Emulex in December about a possible tie-up,
but according to Broadcom Chief Executive Scott McGregor, Emulex
wasn't interested in talking.
"They basically said, 'No, the company isn't for sale,'"
McGregor said last month during a conference call.
In January, Emulex adopted a revised "poison pill" antitakeover
measure to replace one set to expire that month.
-By Jerry A. DiColo, Dow Jones Newswires; 201-938-5670;
jerry.dicolo@dowjones.com
(Tess Stynes contributed to this report)