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Emulex 'hired Goldman Sachs to find themselves a buyer' - report

Company tight-lipped, 'insiders' spill beans

Internet Security Threat Report 2014

SAN storage adaptor supplier Emulex has hired Goldman Sachs to find a buyer, according to Bloomberg.

Neither Emulex nor Goldman Sachs have confirmed the story, which Bloomberg says it heard from two people "with knowledge of the situation".

The rationale for such a sale is strong. The Fibre Channel HBA market, which Emulex and near-equal market share competitor QLogic dominate is a pretty low growth market as iSCSI access to block storage over Ethernet is preventing FC going down-market.

Faster Ethernet speeds are catching up with the current 8 and 16Gbit/s FC speed, and FCoE (Fibre Channel over Ethernet) is a potential successor or replacement for FC.

Ethernet gear supplier Broadcom mounted a hostile takeover for Emulex in 2009, offering $11.00/share, which Emulex rebuffed, assuring shareholders they would get more value if Emulex management ran the company than if Broadcom took over.

But Emulex's stock performance since then has fallen short of management's 2009 assurances. Instead of $600 million revenues in 2012 as Emulex predicted, revenues were $501.8 million. Such underperformance dragged prices down and they have continued going downhill since the failed Broadcom bid, trading for less than $8.00/share for over a year. Four things helped dampen the shares further:

  • Broadcom successfully sued Emulex for patent infringement and the company appeared to lack a strategy for growing again.
  • Emulex has made losses in eight of the past 12 quarters.
  • In 2012 activist investor Elliott Management built up a stake in Emulex and started pushing in 2013 for board representation and a sale of the company or its assets. Emulex decided to expand into Ethernet network performance analysis instead by buying Endace; a strategy Elliott opposed.
  • A second activist investor, Altai Capital, appeared on the scene, largely supporting Elliott's aims, and Emulex's management, led by CEO Jim McCluney was under assault again.

The Endace acquisition succeeded and it appeared Emulex was weathering the activist investor storm, but apparently not, if the Bloomberg report is to be believed. McCluney and the board must have decided Emulex's growth prospects are slight and its time to cut and run for the retirement hills, giving someone else a chance to take the reins of their stodgy company and whip it into action.

Emulex competitor QLogic is also in trouble, having changed its CEO and implemented restructuring plans to save costs.

Bloomberg mentions Broadcom and Brocade as potential Emulex buyers. ®

Internet Security Threat Report 2014

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