Broadcom continues to push for $764M Emulex acquisition

Broadcom believes Emulex shares its view that the convergence of data and storage networking is the long-term future of enterprise networks and plans to continue to pursue its $9.25 per share bid. However, Emulex believes Broadcom's proposal is "opportunistic," significantly undervalues its worth, and is not in the best interest of its stockholders.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 5/5/2009

Broadcom Corp isn't taking no for an answer when it comes to its bid for Emulex Corp and is maintaining the view that 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.

Although the board at Emulex on Monday unanimously rejected Broadcom's $9.25 net per share cash offer to acquire the company, Broadcom is pushing ahead and today announced that its wholly owned subsidiary, Fiji Acquisition Corp, has commenced a tender offer for all the outstanding shares of Emulex's common stock. In addition, Broadcom has filed a preliminary consent solicitation statement to amend Emulex's bylaws to allow stockholders to call a special meeting.

The total equity value of the offer is approximately $764 million and, as Broadcom pointed out, represents a 62% premium to Emulex's average closing stock price for the 30 trading days immediately prior to Broadcom's public offer to acquire Emulex announced on April 21. The offer also represents a 42% premium over the median 12-month stock price target published by research analysts as of April 20, a 40% premium over the closing price of Emulex common stock on April 20, and an approximately 85% premium over Emulex's enterprise value as of the closing price of Emulex common stock on April 20, Irvine, Calif-based Broadcom said.

In its statement yesterday, Emulex said Broadcom's proposal significantly undervalues its worth and is not in the best interest of its stockholders.

"After a thorough review of the proposal in consultation with our advisors, the board unanimously concluded that it is an opportunistic attempt by Broadcom to capture substantial current and long-term value that properly belongs to Emulex stockholders," Paul F Folino, executive chairman of Emulex's board, said. "The board is very enthusiastic about Emulex's future prospects and the long-term value we expect to deliver through the company's current strategy."

Jim McCluney (pictured), Emulex's president and CEO, expanded on Folino's "opportunistic" statement. "In addition to our leadership position in the host server and embedded storage markets, Emulex is also quickly becoming the premier provider of converged networking for the enterprise," he said. "As Broadcom is uniquely aware, Emulex has recently won tier-one original equipment manufacturer contracts at the expense of Broadcom and our other competitors, and as such, we are well positioned to gain share in this rapidly growing segment. We look forward to continuing to execute on our strategy to create significant value for stockholders and customers over the long-term."

Broadcom disagreed and said it will continue to pursue Emulex.

"We are disappointed by Emulex Corporation's rejection of Broadcom's proposal which would deliver substantial, immediate, and highly certain value to Emulex's stockholders, while further providing significant benefits to customers and employees alike," Scott  McGregor (pictured), Broadcom's president and CEO, said in a company statement this morning. "The Emulex board's response on Monday and its continued unwillingness to engage in discussions with Broadcom are clearly not in the best interests of either its stockholders or its customers. This intransigence could cause needless delay in efforts to combine our two companies, leading to further deterioration of Emulex's market share and stockholder value.

"While we much prefer to arrive at a negotiated agreement with Emulex, the Emulex board has left us with no choice but to ask Emulex stockholders to call for a special meeting of stockholders so that they can consider the merits of our offer for themselves," he continued.

Broadcom further said that Emulex has failed to demonstrate an ability to convert design wins into either revenue growth or market share, and claimed that over the last several years Emulex has lost market share. 

"Emulex has made it clear that it shares our view that the convergence of data and storage networking is the long-term future of enterprise networks," McGregor said. "This combination would enable us to accelerate our efforts to bring this vision to our customers. We believe the logic of this combination is equally compelling for the employees of both companies. In particular Emulex's highly skilled employees would have greater opportunities to enhance their careers as a result of access to Broadcom's Ethernet portfolio, our intellectual property, and tools and the enhanced sales, service, and manufacturing support our greater scale makes possible."