Emulex rejects Broadcom takeover bid

Computerworld - Network components maker Emulex Corp. today rejected an unsolicited buyout bid by chip maker Broadcom Corp., saying the all-cash offer undervalued the company and didn't take into consideration its future earning potential in the Ethernet market.

Broadcom offered $9.25 per share, or about $764 million in cash, for Emulex, which reported about $488 million in sales last year. Upon news of the offer, Emulex's stock increased 2.6% this morning to a high of $10.69 per share on the Nasdaq Stock Market.

Emulex Chief Operating Officer Jeff Benck, in an interview with Computerworld, said the takeover bid "had a hostile element to it."

"It wasn't a complete surprise, given that there was some discussion back in December with [Broadcom] ... but it was somewhat unsolicited," he said. "Their messaging, at least externally, has been they're all about Ethernet ... and we bring Fibre Channel assets, and with the converged networks market, they felt us coming together would be a good marriage to address that market," Benck said.

Benck didn't discount the possibility that Emulex would accept a more generous counteroffer from Broadcom, but he would not give an estimate on what that offer would be. "The board has a fiduciary responsibility to look at any offer, and they take that very seriously," he said. "But we remain focused on executing our strategy."

Benck said Broadcom has yet to indicate whether it would come back with a follow-on offer, but any offer would need to take into consideration the emerging converged network adapter market, where IP and Fibre Channel protocols can play together across the same networks, thereby reducing overall management requirements.

"We really feel the Broadcom offer would really take the long-term value of those wins and keep them from the shareholders," Benck said. "When you look at our company today, it's not just focused on storage networking anymore."

Broadcom did not immediately reply to a request for an interview.

Emulex, which has about 850 employees, makes Fibre Channel host bus adapters for attaching application servers to storage-area networks as well as network-attached storage systems.

Emulex 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.

In a letter to Broadcom, Emulex's board of directors stated that Broadcom's bid is not in the best interests of Emulex stockholders because it "significantly undervalues Emulex's long-term prospects," especially regarding network convergence, is "opportunistic" because of "significant new unannounced design wins" that Emulex has received over its competitors, and is timed to "to take advantage of Emulex's depressed stock price."

"Emulex's future prospects and long-term value are best delivered through Emulex's current strategy," the company stated in its letter. "Emulex continues to become the premier provider of converged networking for the enterprise, evidenced by the fact that the company has recently won tier-one OEM contracts at the expense of Broadcom and other competitors, making Emulex well positioned to gain share in this rapidly growing segment."

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