Broadcom Makes Unsolicited $764 Million Bid For Emulex

The offer, made to Emulex's Board of Directors, represents a 40 percent premium above the closing price of Emulex common stock on April 20, 2009.

Broadcom, Irvine, Calif., develops semiconductors for wired and wireless communications and networking. Emulex, based in neighboring Costa Mesa, Calif., develops storage networking controller chips, adapters, blades and connectivity solutions, and counts as OEM customers such vendors as Dell, EMC, Fujitsu-Siemens, Hitachi Data Systems, Hitachi, Hewlett-Packard, IBM, LSI, NEC, NetApp and Sun.

The acquisition, if it were to go through, would enable Broadcom to accelerate the development of converged solutions for enterprise networks with the technolgies of both companies.

Data center convergence has become a major technology drive as customers look for better ways to improve the efficiency of their IT operations.

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That convergence includes such things as Fibre Channel over Ethernet (FCoE), a new version of the Ethernet protocol that allows Fibre Channel connectivity to happen on the same network as IP traffic, and which could eventually work with a variety of IP and storage protocols over a single network.

Convergence in the data center is also coming from moves by major IT vendors to combine server, storage and networking technologies, as evidenced by Cisco's recent entry into the server market with its Unified Computing System (UCS) and similar moves by more established server vendors like IBM, HP and Sun.

Scott A. McGregor, president and CEO of Broadcom, said in a statement that the combination of the two companies addresses customers' growing needs for combining Ethernet and Fibre Channel into low-cost network converged solutions.

"The logical evolution of the enterprise network is for a transition to a converged fabric architecture that incorporates a broad array of technologies," McGregor said in the statement. "Our combined entity can be a one-stop shop for key networking and storage technologies for the enterprise and for our industry. Our preference is to proceed in a friendly, collaborative manner, and we hope that Emulex's Board will see the merits of this combination and appreciate the substantial value being offered to its shareholders."

Broadcom on Tuesday also revealed the contents of a letter sent by McGregor to Emulex's Board of Directors and its chairman, Paul Folino, outlining its proposed acquisition of Emulex and what it called the benefits of the transaction.

In the letter, McGregor said that Broadcom started talking to Emulex about an acquisition in December, but that Emulex broke off negotiations in January and adopted a "poison pill" strategy to prevent unsolicited takeover bids.

"It is difficult for us to understand why Emulex's Board of Directors has not been open to consideration of a combination of our respective companies. We would much prefer to have engaged in mutual and constructive discussions with you. However this opportunity is in our view so compelling, we now feel we must share our proposal publicly with your shareholders," McGregor wrote.

McGregor also wrote that the data center architecture is evolving rapidly, and that customers are looking for converged networking solutions where data traffic, including network, storage and clustering can be carried over a single network infrastructure.

"These converged networking solutions promise to enable end users to reduce the overall number of NICs (network interface cards), cables and switch ports required to run their networks, which, in turn, lowers overall costs, power and cooling requirements, and reduces the time and expense spent supporting and maintaining multiple distinct networks. In the future, the convergence of Fibre Channel and Ethernet 'FCoE' will be offered through a single chip solution inside Servers and Switches," he wrote.

In a statement, Emulex responded to Broadcom's proposed acquisition bid by saying, "The Board will review the proposal in due course, consistent with its fiduciary duties, in consultation with its financial adviser, Goldman, Sachs & Co., and its legal adviser, Gibson, Dunn & Crutcher LLP. Emulex noted that there is no need for Emulex stockholders to take any action at this time."

Broadcom did not respond to requests for additional information.