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Emulex issues hostile rejection to Broadcom's unsolicited $764M bid

Dave Raffo

Emulex Corp. today issued a hostile rejection to Broadcom Corp.'s hostile takeover attempt.

The Emulex board turned down the $764 million offer Broadcom made for the host bus adapter

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(HBA) and converged network connectivity vendor, claiming the chipmaker was looking to cash in on unannounced OEM deals secured by Emulex and take advantage of its depressed stock price in "unprecedented" economic conditions. Emulex executive chairman Paul Folino also accused Broadcom of misrepresenting the poison pill Emulex enacted following Broadcom's offer in December.

"They're trying to take advantage of our depressed stock price. The timing of their offer wasn't by accident," said Jeff Benck, Emulex's executive vice president and chief operating officer, in an interview today with SearchStorage.com.

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Broadcom offered $9.25 per share for Emulex in December, and made the offer public two weeks ago. Emulex stock was trading at $6.25 before Broadcom made its offer public, but quickly shot up and opened at $10.33 today.

Broadcom had a terse response to Emulex's rejection. "We are evaluating our options," Broadcom VP of global media relations Bill Blanning wrote in an email to SearchStorage.

Financial analysts have predicted that Emulex would seek a better price from Broadcom.

Aaron Rakers, a financial analyst at Stifel Nicolaus Equity Research, pointed out in a note to clients today that Broadcom recently won an $891 million settlement with chip maker Qualcomm Inc. "This rejection comes at no surprise," Rakers wrote. "We 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 to $12 per share range."

Benck wouldn't speculate on further negotiations or comment on whether other companies have made offers for Emulex. He said management is looking to increase shareholder value and ensure the Broadcom offer doesn't distract Emulex employees.

Emulex executives have made it clear they would prefer to continue as a standalone company. CEO Jim McCluney and others have pointed to the company's new 10 Gigabit Ethernet (10 GbE) strategy and opportunities in converged networking. They said Emulex has design wins for 10 GbE cards, and beat out Broadcom for some of them.

Emulex released the rejection letter Folino sent to Broadcom CEO Scott McGregor. Folino said Broadcom's April 21 letter "incorrectly describes our prior communications regarding your interest in Emulex, as well as Emulex's corporate governance structure. It is unclear why you raised these subjects and made inaccurate statements in regard to them as they are unrelated to your proposal, so I will not respond other than to strongly urge you that any statements you plan to release to the public or make to stockholders or customers in the future be accurate."

Folino's letter didn't specifically mention the poison pill, but Benck said that was "inaccurately described" in Broadcom's letter. Broadcom's April 21 letter said it would take legal action to declare Emulex's poison pill invalid.

Benck said the poison pill – officially known as a shareholders rights plan – wasn't implemented in direct reaction to the Broadcom offer.

"We had a shareholder rights plan in place for over 20 years," Benck said. "The previous plan was adopted over 10 years ago, and was scheduled to expire in January."

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