Broadcom drops bid for Emulex
The bitter takeover battle between two Southern California technology companies ended Thursday when Broadcom Corp. said it was abandoning its $912-million hostile bid for Emulex Corp. -- at least for now.
Broadcom Chief Executive Scott A. McGregor, who only two weeks ago sweetened his offer by 20%, said the Irvine network chip maker will now pursue “other value-creating alternatives.” Broadcom said it would not renew its $11-a-share offer for the Costa Mesa company when the offer expires Tuesday.
Broadcom’s announcement came after Emulex’s board earlier in the day unanimously rejected the offer and recommended that its shareholders not sell their stock to Broadcom, saying the offer was “inadequate.”
The news triggered an 18% drop in Emulex’s share price, which partially rebounded to close at $8.94, down 76 cents, or 8%. Broadcom shares gained 96 cents to $24.31.
McGregor said his company would work to “position Broadcom to capitalize on the emerging opportunities in the converged enterprise networking markets.”
Analysts say there is still a chance Broadcom will resume the pursuit because Emulex represents the easiest and fastest way for the company to jump into the market for equipment used to connect large data storage machines with server computers.
“Broadcom has indicated that this is the end,” said Rajesh Ghai, an analyst with ThinkEquity. “But given the lack of alternatives for Broadcom for getting into this market, I would not be surprised if they come back at another point.”
Short of acquiring Emulex, Broadcom could either develop its own technology or go after a similar company, such as QLogic Corp., based in Aliso Viejo. Neither are attractive options because it would take Broadcom time to develop its own technology and QLogic would cost more than twice as much as Emulex, Ghai said.
For now, the announcement ends a contentious process marked by lawsuits lobbed by both sides. Broadcom initially had sued to invalidate an Emulex poison pill designed to ward off hostile takeovers. Emulex countered with a lawsuit charging that allegations against Broadcom’s co-founder and former chief executive, Henry T. Nicholas III, made the company untrustworthy.
Nicholas, who is no longer involved in the company, is awaiting prosecution on two federal indictments, one on a stock-backdating charge and another alleging he had supplied drugs to acquaintances.
Broadcom originally launched its unsolicited bid for Emulex on April 21. The $9.25-a-share all-cash offer valued Emulex at $764 million. It raised its bid to $11 a share, or $912 million, on June 29.
Emulex, with 775 employees, makes chips that connect storage, servers and networks in data centers. Broadcom, with nearly 7,200 employees, makes semiconductors for cellphones and other communications products.
Separately, Emulex said Thursday that earnings for its fiscal quarter ended June 28 were at the high end of its forecast of 1 cent to 5 cents a share, excluding some costs. Sales are estimated at $78 million to $79 million.
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