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Avago buys Emulex for $606M to expand storage portfolio

Networking and wireless chip maker Avago Technologies is pushing deeper into enterprise storage with its planned acquisition of storage networking vendor Emulex.

Avago said Wednesday evening that it has agreed to acquire Emulex for $606 million – considerably less than Broadcom offered for Emulex in a hostile takeover attempt in 2009.

Like its main rival QLogic, Emulex sells Fibre Channel host bus adapters and Ethernet storage connectivity products through major storage vendors. The deal comes 14 months after Avago splashed $6.6 billion on storage component firm LSI. Avago then sold LSI’s solid-state drive controller and PCI Express (PCIe) flash card business to Seagate for $540 million in May 2014, but retained its SAS controller and PCIe products.

“Emulex is complementary to Avago’s enterprise storage businesses, and aligns very well with the Avago business model,” Avago CEO Hock Tan said of the deal.

Tan said Emulex’s storage OEM partners are among the same vendors who sell Avago’s SAS, RAID, and PCIe Express switching products. EMC and Hewlett-Packard are Emulex’s largest storage partners.

“We expect this transaction to allow us to offer one of the broadest suites of silicon and software storage solutions to the enterprise and data center markets,’ Tan added.

Tan said he expects the deal to close by the end of June. Emulex will operate as a business unit inside Avago’s enterprise storage segment.

Tan projected that Emulex would add about $250 million to $300 million in annual revenue over the first year, which is below previous expectations. Emulex reported $111 million in revenue last quarter, and analysts expected it to generate about $400 million in 2015 as a standalone company.

Still, Tan said he sees strong interest in Fibre Channel and Fibre Channel over Ethernet revenue for storage. “We see that this Fiber Channel business is really a very sustainable stable business,” he said. “It’s a kind of business where we see a lot of barriers to entry, obviously. And we see a very unique technology, which is very hard to replicate because of all the criteria that fits our business model. So it’s a logical and strategic next stop for us to add Fibre Channel and Fibre Channel over Ethernet into our suite of component solutions and software.”

Emulex fought off a takeover attempt by Broadcom in 2009, enacting a poison pill to keep the networking company from buying a controlling interest. Emulex said Broadcom’s offers undervalued Emulex’s shares, but that offer looks good now. Broadcom’s opening offer was worth $764 million, and it increased to $925 million before walking away.

Emulex CEO Jeff Benck, who was not with Emulex when Broadcom made its move, called the Avago deal “a great opportunity for Emulex” in a press release.

Avago will pay $8 per share for Emulex. The HBA vendor’s stock rose from $6.36 at the close of Wednesday to $8.03 at today’s opening. Still, at least 10 law firms have already said they will investigate whether the Emulex board got the best price for the company.

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