Broadcom Makes Hostile Bid for Emulex
Broadcom (NASDAQ: BRCM) today made an unsolicited bid to acquire Emulex (NYSE: ELX) in a play for the emerging Fibre Channel over Ethernet (FCoE) market.
Just a day after Oracle (NASDAQ: ORCL) and Sun Microsystems (NASDAQ: JAVA) agreed on merger terms, Broadcom again shook up the data storage market with its hostile takeover bid for HBA, CNA and embedded storage products vendor Emulex.
"Broadcom believes that its leadership in Ethernet networking, together with Emulex's deep expertise in Fibre Channel storage networking, will enable the combined company to accelerate the development of converged solutions for enterprise networks," Broadcom said in a statement.
Broadcom offered $764 million in cash for Emulex, or $9.25 a share, a 40 percent premium to its close Monday night. Emulex shares traded as high as $9.68 this morning, suggesting that traders think Broadcom's offer was not its final one.
Broadcom CEO Scott McGregor said in a statement that "A combination of Broadcom and Emulex addresses our customers' growing need to apply the economics of Ethernet to the Fibre Channel storage space to achieve low-cost network converged solutions. The logical evolution of the enterprise network is for a transition to a converged fabric architecture that incorporates a broad array of technologies. Our combined entity can be a one-stop shop for key networking and storage technologies for the enterprise and for our industry."
In an open letter to Emulex's board, McGregor said Broadcom sought to engage Emulex in merger discussions in December. "We were disappointed when, in early January, you responded that the company was not for sale and abruptly cut off the possibility of further discussions," he wrote. "Even more troubling was the fact that merely one week after that communication, you took actions clearly designed to thwart the ability of your shareholders to receive a premium for their shares. These included adopting a 'poison pill' and amending your bylaws."
McGregor said Broadcom was launching a legal action in the Delaware Court of Chancery against Emulex "to declare invalid that portion of Section 6.4 of Emulex's recently amended bylaws that imposes the requirement that the bylaws may not be altered, amended or repealed by the stockholders without the vote or written consent of 66-2/3 percent of the outstanding shares. We will also ask the Court of Chancery to enjoin enforcement of that provision as well as any improper actions to impede this proposal or Broadcom's efforts to acquire control of Emulex.
"Of course, our strong preference would be to proceed in a friendly, constructive way to make this exceptional opportunity a reality as soon as possible," McGregor added.
The convergence of Fibre Channel and Ethernet, McGregor wrote, "will be offered through a single chip solution inside servers and switches. 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."
In a research note today, Stifel Nicolaus analyst Aaron Rakers wrote that Emulex as a standalone company "would face some strategic and fundamental challenges going forward with regard to its positioning in blade servers," and he said that QLogic (NASDAQ: QLGC) is better positioned for FCoE.
Wedbush Morgan analyst Kaushik Roy speculated that Ethernet vendors are "getting desperate for the Fibre Channel stack," with FCoE and Converged Enhanced Ethernet (CEE) looming. He said that other companies like Intel (NASDAQ: INTC), Marvell (NASDAQ: MRVL) or PMC-Sierra (NASDAQ: PMCS) might want to make a bid for Emulex, and he said Juniper Networks (NASDAQ: JNPR) might want to acquire QLogic.
Emulex issued a statement today confirming that it had received an unsolicited proposal from Broadcom to acquire the company for $9.25 a share in cash. "The Board will review the proposal in due course, consistent with its fiduciary duties, in consultation with its financial advisor, Goldman, Sachs & Co., and its legal advisor, Gibson, Dunn & Crutcher LLP. Emulex noted that there is no need for Emulex stockholders to take any action at this time."
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