May 04, 2009, 1:53 PM — Emulex has rejected a hostile takeover bid from Broadcom for the second time this year, saying a $764 million offer "significantly undervalues" the company.
Broadcom made the bid last month, saying the offer represented a 40% premium on Emulex's stock. In an April 21 letter to the board of directors, Broadcom CEO Scott McGregor chided Emulex for turning down a previous offer in January and adopting a "poison-pill" clause to prevent a sale. Broadcom also filed a lawsuit citing the poison pill clause and alleging that the Emulex board amended its bylaws without stockholder approval to prevent a sale.
Emulex announced Monday that it unanimously rejected the offer after receiving advice from financial and legal advisers.
"After a thorough review of the proposal in consultation with our advisors, the Board unanimously concluded that it is an opportunistic attempt by Broadcom to capture substantial current and long-term value that properly belongs to Emulex stockholders," Emulex board chairman Paul Folino said in a written statement. "The Board is very enthusiastic about Emulex's future prospects and the long-term value we expect to deliver through the Company's current strategy."
In a letter to Broadcom, Emulex's directors said the offer is timed to take advantage of Emulex's stock price being depressed because of the recession, and doesn't take into account that Emulex's stock has "traded well above the proposed price within the last twelve months."
Emulex told Brocom that the offer "significantly undervalues Emulex's long-term prospects, particularly with respect to our opportunities in network convergence, which are more than doubling Emulex's addressable market ... [and] is opportunistic given Broadcom is aware of significant new unannounced design wins that Emulex has secured with tier-one OEMs, at the expense of Broadcom and other competitors, and their potential long-term value creation for Emulex and its stockholders."
Broadcom and Emulex are both based in Orange County, California -- Emulex in Costa Mesa and Broadcom in Irvine.
Broadcom produces semiconductors used mainly in communications products, such as communications networks, cell phones and cable set-top boxes. Emulex provides technology for connecting storage, servers and networks in data centers.
Broadcom wants Emulex mainly for its Fibre Channel storage-networking expertise, McGregor said last month, and thinks the deal would benefit shareholders, customers and employees of both companies for several reasons. Not only would Emulex shareholders receive a premium on their shares, he said, but the combined company, which has little product overlap, could use its portfolio to provide low-cost, network-converged storage and networking to customers, he said.
The IDG News Service contributed to this report.