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Broadcom raises Emulex bid

Madame, will you talk?

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Broadcom has gone ahead and raised its $9.25/share all-cash Emulex bid to $11.00/share, the upper end of the expected range.

It has extended its tender offer for an additional 10 business days, until midnight July 14, 2009. Broadcom now values Emulex at $912m to be precise, up from the previous $764m valuation, meaning it is prepared to spend an additional $148m over its orginal bid to buy the company.

Broadcom, a supplier of Ethernet switches and chips, wants Emulex for its Fibre Channel over Ethernet (FCOE) technology which can be added to its chip product line, enabling its customers to capitalise on a growing trend to converge server edge networking for both Fibre Channel storage and Ethernet onto an Ethernet platform. Storage array edge networking may also move away from Fibre Channel to FCOE, necessitating the use of FCOE-capable Ethernet technology.

So far in the hostile bidding war Emulex has impugned the reputation of Broadcom and persistently said its bid undervalues the company. Broadcom has said Emulex' management has significantly under-performed and failed to capitalise on technology advances. It had wanted to force an Emulex shareholder meeting, via a consent solicitation, which could expose the incumbent Emulex board to replacement. Broadcom had also instituted a legal action to sweep away an Emulex poison pill defence against unwanted takeover bids.

The president and CEO of Broadcom, Scott McGregor, sent a public letter to the Emulex board and Paul Folino, its executive chairman, in which he wrote that Broadcom has terminated its attempts to get a consent solicitation for a special stockholder meeting.

The letter also said: "We have instructed our Delaware counsel to dismiss the lawsuit in which we challenged the validity of Emulex's supermajority voting bylaw and its "poison pill" anti-takeover device."

Both of these things should clear the air for any talks.

The letter closed on a fairly friendly note, saying: "Paul, if we move quickly to combine our two companies with the speed required by market dynamics, great value can be delivered now to your shareholders and future opportunities created for ours. If not, we believe it is only prudent for Broadcom to consider other alternatives."

There was also the implied hint that more money mght be forthcoming, as the raised bid is described by McGregor thus: "Based on our assessment of the information we have and that is publicly available about Emulex, this proposal represents the best offer we can make based on an expedited transaction."

Emulex' board did not immediately reject the Broadcom bid. Instead it issued a statement saying that, in line with its fiduciary duty, it would review Broadcom's bid and issue a recommendation in due course.

Emulex shares closed yesterday at $10.88, suggesting that the market does not expect a higher bid. ®

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