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Emulex (NYSE: ELX) once again rejected Broadcom's (NASDAQ: BRCM) advances today, saying the company's hostile takeover bid "significantly undervalues Emulexs long-term prospects and is not in the best interest of our stockholders."
Broadcom's offer two weeks ago to acquire Emulex for $9.25 a share apparently followed merger talks in December and January.
In a letter to Broadcom, Emulex executive chairman Paul Folino said the takeover offer fails to consider the company's promise in the emerging market for data center network convergence, as data storage and Ethernet networks begin to converge.
Cisco Systems (NASDAQ: CSCO) and Brocade (NASDAQ: BRCD) have been at the center of that convergence, while Emulex and competitor QLogic (NASDAQ: QLGC) are making the cards and adapters to bring SANs and LANs together.
Just last week, QLogic acquired 10GbE startup NetXen to strengthen its own unified fabric offerings, and QLogic itself has been the subject of acquisition rumors.
Emulex said it has achieved "numerous design wins" for its CNAs and convergence management framework, including five "tier one" 10Gb/s Ethernet Network Interface Card (NIC) placements, three 10Gb/s iSCSI CNA placements and four 10Gb/s Fibre Channel over Ethernet (FCoE) CNA placements. Those moves have doubled its market reach, Emulex said.
"[G]iven that some of these design wins have come at your expense, including your core Ethernet networking business, you are uniquely aware of the future value we have secured and how well positioned we are to unseat you on many other platforms in the near future," Folino wrote. "We believe your proposal is an opportunistic attempt to capture that value, which rightly belongs to our stockholders. Your unsolicited proposal is an opportunistic attempt to take advantage of Emulex's depressed stock price due to unprecedented macroeconomic conditions."
Emulex said its list of customers includes Cisco, Dell (NASDAQ: DELL), EMC (NYSE: EMC), Fujitsu, Hitachi, HP (NYSE: HPQ), IBM (NYSE: IBM), LSI (NYSE: LSI), NEC, NetApp (NASDAQ: NTAP), Sun (NASDAQ: JAVA) and Xyratex (NASDAQ: XRTX), positioning the company for strong sales growth as converged networks are adopted.
Folino also said that Broadcom's April 21 letter "incorrectly describes our prior communications regarding your interest in Emulex, as well as Emulex's corporate governance structure," but he did not elaborate.
Stifel Nicolaus analysts Aaron Rakers and Matthew Nahorski wrote in a research note today, "we believe Emulex is leveraging a strategic joint-development agreement with privately held ServerEngines to attain the 10GbE functionality/technology required to offer its converged networking solutions."
"We had stated last week that we believe Broadcom is committed to this acquisition and that a higher price would ultimately be realized, possibly in the $11-$12 per share range," they wrote. The analysts noted that $11.50 a share would equate to a roughly $925-$950 million acquisition for Broadcom "which just received $891 million in a settlement with Qualcomm."
R.W. Baird analyst Jayson Noland also said he expects a higher bid from Broadcom but he thinks Emulex "probably does have enough influence to stave off" an acquisition.
In other acquisition news today, BakBone Software said it has acquired the assets of data recovery partner Asempra Technologies for about $2 million, plus accrued royalties.
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