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Emulex rebuffs Broadcom's advances again

Naff off. Or come back with more cash

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Comment Emulex has reinforced its opposition to a revised Broadcom bid to take the company over. In its latest rebuttal to Broadcom's latest $9.25/share offer, it virtually repeated the statement it made following the first unsolicited attempt.

The Emulex statement says the Broadcom offer "significantly undervalues Emulex's long-term prospects", as did the first takeover approach to the Emulex board. It says that Broadcom knows of secret Emulex design wins for its converged networking technology that make the company more valuable.

The Emulex response is on shakier ground when it says that the Broadcom offer does not take into account "initiatives being undertaken by Emulex that will start to meaningfully impact earnings within the next year and beyond". Promising jam tomorrow when a company has under-performed and is losing market share to a competitor (QLogic) does not inspire confidence.

The Emulex rejection statement contains repetitive stuff about its depressed share price, which is weak, and then says the bid would be funded "in significant part by Emulex's own cash resulting in Broadcom offering only $5.59 per share for the operations of Emulex; and Is highly conditional, creating substantial uncertainty as to whether Broadcom would be required to consummate the Offer."

Emulex also rejects the Broadcom attempt to nullify its poison pill takeover defence, the Content Solicitation.

How do we read all this? One way is to say it's a request for a higher offer, one that is expected by many commentators in the financial media. The points about under-valuing Emulex and using Emulex's own funds, and the lack of clarity about Broadcom's commitment to consummate the offer can be taken as negotiation ploys through and through.

But suppose Emulex's board really did not want the offer to succeed. What could it say? It could say what it has, and add that Broadcom, knowing the board was opposed to the offer at $9.25, and knowing it preferred private communications, had come back with exactly the same offer price, publicly.

It had pitched it direct to Broadcom's shareholders without raising it and trying to get Emulex's management on board. Where is Broadcom's goodwill and intent to achieve a mutually beneficial outcome? "Absent" is what Emulex could say. It hasn't done so.

Emulex's board could also try pointing out the lack of a good fit between Broadcom's wired Ethernet technology products and its own Fibre Channel HBAs progressing to FCoE CNA adapters on the one hand, and the silicon technology for use inside storage arrays on the other.

The problem here may be that the two things are not chalk and cheese, but more cheese and biscuit; the CNAs do have, on the surface, a good fit with Broadcom's switches. They could play nice together.

Emulex's board hasn't done this either. We're left with Emulex's board repeating "Go away", and not explaining why Broadcom should do so except that its bid under-values the company. We don't know what Emulex's board wants. It could, some might think, be putting forward a more determined defence than it has been, and the lack of this could be assisting the assessment that it simply wants more money.

Yesterday Emulex's share price finished at $10.63. Following today's second rejection of the bid the stock has risen to $10.72. Clearly the market expects, and hopes for, a higher offer by Broadcom. It seems to be saying: "Come on guys. What stockholder is going to accept $9.25 from you when the open market price is $10.72 and rising. If you're really serious then dip your corporate hands in your corporate wallet and find more cash."

The market could be disappointed; the bid might not succeed. ®.

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