Feeds

Bolshy investors launch yet another assault on Emulex board

Ethernet switch-maker now fending off blows from TWO pissed off hedge funds

Next gen security for virtualised datacentres

Angry investor Altai Capital Management has written an open letter to Emulex CEO Jim McCluney demanding the resignation of Emulex's board after it rejected a takeover offer from Broadcom.

That's the view put across by activist investor Altai Capital Management in a public letter to Emulex CEO Jim McCluney.

Background

Emulex makes some Ethernet switching gear, plus its mainstream Fibre Channel host bus adapters to link servers to Fibre Channel storage area networks (SANs). Its main competitor is network infrastructure supplier QLogic. Recently Emulex acquired Endace, a New Zealand-based supplier of Ethernet link monitoring equipment, for $130 million.

Emulex is under assault by two hedge funds: Elliot Management, which has a near-10 per cent holding and two of its nominees on Emulex' board, and Altai Capital Management, which holds 6.04 per cent of Emulex Corp's shares. Both Altai and Elliott want Emulex to provide far more money to shareholders than it has, either by repurchasing shares to drive up their price or by running the business better to create more business value.

Altai's letter

Altai's letter is precise and pointed.

Its main points are:

1. Emulex's share price has been lower than it should following the Endace acquisition announcement on 5 December last year. It "has materially underperformed the market as well as its closest competitor, QLogic," as the chart shows:

Emulex vs QLogic share price

Emulex and QLogic share price trends since Endace acquisition announced (Source: Google Finance)

2. It will take up to 17 years for Emulex to recoup the $130m Endace acquisition cost.

3. With Emulex shares priced today at $6.29, management should not have rejected the $11/share Broadcom offer in July 2009. The letter says: "if your Board had accepted that offer, shareholders clearly would be much better off than they are today."

4. At that time management projected 2012 revenues of $600m and $1.45 earnings/share. In reality revenues were $502m and EPS $0.68; misses of 16 per cent and 41 per cent respectively.

The letter states: "Given [its] sizeable forecast miss in the midst of a decision that had enormous economic consequences for your shareholders, we believe it will take many years for management to regain credibility in the public markets."

On the basis of these four points Altai recommends:

We contend that the best course of action is for Emulex to initiate a sale process, and we therefore request that the current Board engage financial advisors immediately to undertake this task in earnest. We believe that a sophisticated buyer with the opportunity to properly diligence the Company could pay a healthy premium to today's share price and still earn an excellent return.

If it does not do this, Altai wants the board members who rejected the Broadcom bid to resign and will consider all its options to achieve this, including a threat of a shareholder vote proxy war at Emulex's next annual general meeting.

Are Elliott and Altai working in partnership to achieve the same ultimate end? It certainly seems so. If they formally band together, then Emulex's board and CEO may be vulnerable to their concerted action. This time next year Emulex could have had a head transplant and/or be sold. ®

Secure remote control for conventional and virtual desktops

More from The Register

next story
HP busts out new ProLiant Gen9 servers
Think those are cool? Wait till you get a load of our racks
Like condoms, data now comes in big and HUGE sizes
Linux Foundation lights a fire under storage devs with new conference
Community chest: Storage firms need to pay open-source debts
Samba implementation? Time to get some devs on the job
Silicon Valley jolted by magnitude 6.1 quake – its biggest in 25 years
Did the earth move for you at VMworld – oh, OK. It just did. A lot
Forrester says it's time to give up on physical storage arrays
The physical/virtual storage tipping point may just have arrived
prev story

Whitepapers

5 things you didn’t know about cloud backup
IT departments are embracing cloud backup, but there’s a lot you need to know before choosing a service provider. Learn all the critical things you need to know.
Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Backing up Big Data
Solving backup challenges and “protect everything from everywhere,” as we move into the era of big data management and the adoption of BYOD.
Consolidation: The Foundation for IT Business Transformation
In this whitepaper learn how effective consolidation of IT and business resources can enable multiple, meaningful business benefits.
High Performance for All
While HPC is not new, it has traditionally been seen as a specialist area – is it now geared up to meet more mainstream requirements?