Broadcom makes $764M offer for Emulex

Broadcom makes public an unsolicited offer to acquire Emulex, claiming its Ethernet networking experience, together with Emulex's expertise in fibre channel storage networking, would allow a combined company to accelerate the development of converged solutions for enterprise networks.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 4/21/2009

In addition to announcing Q1 financials this morning, Broadcom Corp announced that it has made an unsolicited offer to acquire storage company Emulex Corp for $9.25 per share in cash, or a total equity value of approximately $764 million. 

The offer represents a 40% premium above the $6.61 closing price of Emulex common stock on April 20, a 62% premium to trailing 30-day average price per share, and an approximately 85% premium to enterprise value. 

The offer also represents the second time Irvine, Calif-based Broadcom has proposed an acquisition of Costa Mesa, Calif-based Emulex. Emulex shot down an offer Broadcom made in December 2008 in early January. One week after refusing the offer, Emulex adopted a "poison-pill" (a strategy used to discourage a hostile takeover by making a stock less attractive to the potential acquirer) and amending its bylaws, according to a letter from Broadcom CEO Scott McGregor to Emulex's broad dated today.

Broadcom said it believes its Ethernet networking experience, together with Emulex's expertise in fibre channel storage networking, would allow a combined company to accelerate the development of converged solutions for enterprise networks.

Broadcom further said it expects such an acquisition would increase both companies' revenue growth, as well as broadening the distribution channels for each company's products, and noted that it has recorded more than 40 transitions that resulted in the integration of companies into its structure. The company claimed it and Emulex have little product overlap and compatible engineering workforces.

"Our proposal to combine Broadcom and Emulex will not only provide significant benefits to Emulex shareholders, but also to Emulex's customers, many of whom we share in common," McGregor (pictured) said in his letter. "The architecture of data centers is evolving rapidly, and customers' desire for system consolidation is driving the need for converged networking solutions where multiple traffic types -- such as network, storage, and clustering -- are all carried over a single network infrastructure. These converged networking solutions promise to enable end users to reduce the overall number of NICs, cables, and switch ports required to run their networks, which in turn lowers overall costs, power and cooling requirements, and reduces the time and expense spent supporting and maintaining multiple distinct networks. 

"In the future, the convergence of fibre channel and Ethernet 'FCoE' will be offered through a single-chip solution inside servers and switches," McGregor continued. "Customers will demand from their suppliers advanced chip technology and supply chain scale and reliability which is not an area of strength for Emulex. Broadcom brings tremendous value in advanced chip technology and supply chain scale and reliability to Emulex's products -- and customers."

Emulex did not immediately respond to Electronic News' request for comment. Emulex's stock, ELX, was up more than 45% from its Monday close to $9.60 as of 11:15am eastern on the public comments from Broadcom.

Q1 financials: Loss down sequentially

Broadcom also announced Q1 results today with net revenue of $853.4 million, a decrease of 24.2% compared with the $1.127 billion reported for Q4 2008 and a decrease of 17.3% compared with the $1.032 billion reported for Q1 2008. 

Net loss the March quarter was $91.9 million, or $.19 net loss per share, showing improvement when compared with Broadcom's net loss of $159.2 million, or $.32 net loss per share, for Q4, but also showing a decline on net income of $74.3 million, or $.14 per share, for the prior year's Q1.

"While we were not able to completely offset the impact of the current economic downturn with our product, customer, and end-market breadth, we believe Broadcom was successful in experiencing a lesser peak-to-trough revenue decline than many of our peers," McGregor said in a statement on the company's results today. "As we progressed through the first quarter, customer bookings strengthened, which is reflected in our anticipated sequential revenue growth in the second quarter of 2009."

Broadcom did not give specific estimates for Q2 in its financial press statement.