May 4, 2009 / 4:39 PM / 10 years ago

UPDATE 2-Emulex rejects Broadcom's $764 mln offer

* Emulex says Broadcom offer undervalues company

* Emulex says offer opportunistically timed

* Emulex shares up 3 pct (Adds analyst comments, share movement)

NEW YORK/BANGALORE, May 4 (Reuters) - Storage networking company Emulex Corp ELX.N said on Monday its board rejected an unsolicited buyout offer from rival Broadcom Corp BRCM.O, calling it an opportunistic move that undervalues the company.

Broadcom, a maker of wireless chips, offered to buy Emulex last month for $764 million, or $9.25 per share in cash. The offer represented a 40 percent premium to Emulex’s closing share price the day before the announcement.

Emulex said Broadcom timed its bid to take advantage of new contracts that Emulex recently won at the expense of its competitors, including Broadcom.

“As Broadcom is uniquely aware, Emulex has recently won tier-one original equipment manufacturer contracts at the expense of Broadcom and our other competitors,” Emulex Chief Executive Jim McCluney said in a statement.

Robert W. Baird & Co analyst Jayson Noland termed Emulex’s rejection as “widely anticipated”.

“We would not be surprised to see a higher bid from Broadcom, though we believe Emulex’s influence and ability to quash the deal is relatively strong,” Noland wrote in a note to clients. He kept a “neutral” rating on Emulex stock.

Emulex makes components used to connect computers to remote storage equipment. Along with QLogic Corp QLGC.O, Emulex also dominates the market for gear that connects servers to fiber channel networks, which can transfer large amounts of data at high speeds.

Efforts are underway in the technology industry to converge fiber channel networks with Ethernet, the widely used standard for local area networks, so that Internet traffic can be processed more efficiently.

Emulex is a leading provider of such network convergence, and is positioned to gain market share, CEO McCluney said.

Broadcom, which makes chips for everything from cell phones to television set-top boxes, has said a deal would extend its presence in storage networks into fiber channel technology.

It already sells chips for Ethernet storage gear and aims to combine the two technologies in new products it hopes to create after buying Emulex.


“Your proposal significantly undervalues Emulex’s long-term prospects, particularly with respect to new data center opportunities in network convergence,” Emulex Chairman Paul Folino wrote in a May 4 letter to Broadcom CEO Scott MacGregor.

Broadcom’s offer is also timed to take advantage of Emulex’s depressed stock price, Emulex said.

“A lose-lose situation has emerged for Broadcom,” JMP Securities analyst Alex Guana said.

While Broadcom will have no choice but to raise its bid, the tenor of Emulex’s letter to Broadcom does not sound encouraging, the analyst wrote.

“Because the Emulex position is uniquely threatening to Broadcom, we do not see other industry players being motivated to come in over the top of Broadcom to make a more aggressive bid,” said Guana.

He kept a “market perform” rating on the stock.

Emulex shares had fallen 80 percent from a July 2007 high of $23.80 to a low of $4.53 on March 9, 2009. They were trading up 3 percent at $10.69 Monday on the New York Stock Exchange. Broadcom stock was up 3 percent at $23.73 on Nasdaq. (Reporting by Anupreeta Das, Mansi Dutta; Editing by Derek Caney, Himani Sarkar)

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