Broadcom ups bid for Emulex to $912M, drops lawsuit

Broadcom is now offering $11 per share for fibre channel storage networking company Emulex, but says it will move on, considering other alternatives, once this offer expires on July 14.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 6/30/2009

Broadcom Corp is taking the "catch more flies with honey" approach when it comes to its pursuant acquisition of fibre channel storage networking company Emulex Corp.

Broadcom Monday evening announced it has raised its tender offer for all of the currently outstanding shares of common stock of Emulex to $11 per share in cash, representing a total equity value of approximately $912 million. Irvine, Calif-based Broadcom on April 21, made public a $9.25 per share cash offer for Costa Mesa, Calif-based Emulex, valued at approximately $764 million. The most recent offer represents a premium of 66% to Emulex's closing stock price on April 20.

Broadcom has refused to take no for an answer when it comes to its bid for Emulex since first beginning discussions with the company in December 2008, and has maintained the then 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. Meanwhile, Emulex has described Broadcom's $9.25 per share proposal as "opportunistic," claiming it significantly undervalues the company's worth and is not in the best interest of its stockholders. Emulex rejected the Broadcom bid in early May.

On the rejection, Broadcom began soliciting Emulex stockholders for a special meeting. That followed accusations by Broadcom that Emulex had adopted a "poison-pill" (a strategy used to discourage a hostile takeover by making a stock less attractive to the potential acquirer).

Scott McGregor, president and CEO of Broadcom, Monday sent a letter to Emulex's board of directors outlining Broadcom's wish to complete the transaction on a "friendly, reasonable, and expedited basis." In the letter, McGregor noted that the company has other opportunities it is pursuing. The letter also said that Broadcom is dropping its lawsuit against Emulex and will stop pursuing its stockholders. McGregor further said the $11 per share is the best offer Broadcom intends to make and noted that the company plans to move on once the offer expires at midnight eastern time on July 14.
 
"As we have said since our first indication of interest last December, we believe combining our two companies will create significant value for our respective shareholders, employees, customers and partners," McGregor wrote.  "We believe the best way to realize this value is to act now to capitalize on the opportunities our two companies could create together. Delay -- and its associated business risks and financial costs -- erode the value of a combination. This is especially so because Broadcom has other value-creating opportunities. We believe it is in the interest of each company's stakeholders to complete a transaction expeditiously or to conclude that we cannot, and move on.

"… In a final effort to engage Emulex's current board of directors, we will cease soliciting consents from Emulex's stockholders to amend Emulex's bylaws and to hold a special meeting of stockholders. At the same time, we have instructed our Delaware counsel to dismiss the lawsuit in which we challenged the validity of Emulex's supermajority voting bylaw and its 'poison pill' anti-takeover device.

"… The arguments in favor of this combination are substantial. Together, the talented employees of our two companies could accelerate the convergence of Ethernet and fibre channel. Broadcom's technology, scale, track record of execution, and highly successful history of acquisitions, along with Emulex's considerable strengths today would make a terrific combination for our combined employees and our customers.

"… If we move quickly to combine our two companies with the speed required by market dynamics, great value can be delivered now to your shareholders and future opportunities created for ours. If not, we believe it is only prudent for Broadcom to consider other alternatives," McGregor wrote. 

Emulex has advised its stockholders to take no action at this time in response to the revised Broadcom tender offer. The company said it will review the terms of the offer and its board will make its recommendation to stockholders "in due course." 

Emulex's stock, ELX, was trading at $10.13 as of 10:51am eastern today, down 6.89% from its Monday closing price of $10.88. Broadcom's stock, BRCM, was trading at $24.74 as of 10:52am eastern today, down 0.68% from its Monday closing price of $24.91.