Broadcom fired its counter salvo at Emulex today – taking its $764 million offer directly to shareholders.
A day after the Emulex board turned down Broadcom’s offer to buy the HBA vendor, Broadcom made a tender offer to Emulex shareholders to buy their stock for $9.25 in cash. That’s the same price per share Broadcom offered the Emulex board in December. The new offer expires June 3.
Broadcom also said it filed a preliminary consent solicitation statement to amend Emulex’s bylaws to allow stockholders to call a special meeting of stockholders. Cutting through the legal jargon, that means Broadcom is trying to get Emulex shareholders to call a meeting and vote to sell their stock to Broadcom.
Broadcom’s press release points out the offer represents a 62% price premium over Emulex’s stock price for the 30 days before Broadcom first made its offer public April 21, and a 40% premium over the price on April 20. However, Broadcom’s offer is below Emulex’s opening price today of $10.75. Financial analyst Kaushi Roy of Wedbush Morgan Securities says Emulex’s rising stock price “means that Emulex shareholders believe that Broadcom ‘really’ wants it and that Broadcom will increase the offer price.”
Broadcom urged Emulex shareholders to overturn the board’s decision.
“The Emulex board’s response on Monday and its continued unwillingness to engage in discussions with Broadcom are clearly not in the best interests of either its stockholders or its customers,” Broadcom CEO Scott McGregor said in a statement. “This intransigence could cause needless delay in efforts to combine our two companies, leading to further deterioration of Emulex’s market share and stockholder value.
“While we much prefer to arrive at a negotiated agreement with Emulex, the Emulex board has left us with no choice but to ask Emulex stockholders to call for a special meeting of stockholders so that they can consider the merits of our offer for themselves.”
Broadcom’s release also answered statements Emulex management has made since the offer was made public. Referring to 10-Gigabit Ethernet OEM design wins Emulex says it has earned at Broadcom’s expense, Broadcom claims “[Emulex] has failed to demonstrate an ability to convert design wins into either revenue growth or market share. Over the last several years, including this most recent quarter, Emulex has continued to lose share to its larger competitor [QLogic].”
Broadcom also pointed out financial analyst estimates for Emulex lowered expectations for Emulex revenue this year and next after the vendor’s latest earnings report, “suggesting that Emulex’s future standalone opportunities amid increased competition remain highly uncertain.”
Emulex sent out a release this afternoon saying its board will review the tender offer, and advised its stockholders to take no action on the consent solicitation. “The Emulex Board will make its recommendation on the tender offer and respond to the consent solicitation in due course,” the company said in a release.
When I spoke to Emulex COO Jeff Benck yesterday after Emulex rejected the offer, I asked him about the possibility of Broadcom appealing directly to shareholders.
“I think shareholders are looking for best value they can get and we have to do a good job of describing our value and what we can bring to table,” Benck said.
In other words, the two management teams are competing to convince shareholders they represent the brighter future.