(Updates to add details about the bid and previous talks with
Emulex, analyst comment; updated stock prices)
DOW JONES NEWSWIRES
Broadcom Corp. (BRCM) launched an unsolicited bid to acquire
Emulex Corp. (ELX) Tuesday for about $764 million, and reported an
unexpected first-quarter loss as weakness in all its market
segments led to a 17% decline in revenue.
Broadcom's cash offer for Emulex of $9.25 per share represents a
40% premium to Emulex's closing price Monday and could spark a
takeover battle for the networking technology maker. Emulex has yet
to respond to this publicly but, according to Broadcom, rejected
earlier advances and in January installed protections against
hostile takeover offers.
Nonetheless, Emulex shares surged 44% to $9.54 as Wall Street
anticipates a higher offer for Emulex either from Broadcom or
another company. Broadcom shares, meanwhile, fell 10% to $19.61 on
the disappointing first-quarter results and the prospects of
raising its offer price.
A deal for Emulex would allow Broadcom to sell snother
technology used in storage networking. Broadcom sells ethernet
networking equipment for the connections in company data centers;
meanwhile, Emulex - and rival Qlogic Corp. (QLGC) - focus on
technology known as fibre channel.
Ethernet is expected to replace fibre-channel technology in
storage networks; however, fibre-channel remains the storage
network standard. Analysts say the ability to sell both ethernet
and fibre-channel could give Broadcom a strategic advantage when
the two technologies converge.
Still, purchasing Emulex isn't a "make or break deal" for
Broadcom, said Jefferies & Co. analyst Adam Benjamin. "If they
find that they are in for a fight, they will walk away."
Benjamin also said it's unclear whether other ethernet and
fibre-channel makers will feel they need closer ties. The long
design cycles for storage networking technology means the strategic
implications of an acquisition could take time to play out.
Emulex hasn't indicated any interest to Broadcom that it wants
to be acquired. Broadcom had approached Emulex in December about a
possible tie-up, but Emulex wasn't interested in talking, Broadcom
Chief Executive Scott McGregor said in a conference call.
"They basically said, "No, the company isn't for sale,'"
McGregor said.
Then, in January, Emulex installed a "poison pill" - or
shareholders rights plan - used in defense against hostile takeover
offers. Such pills are meant to discourage offers from rival
bidders and give a company leverage to negotiate a sweetened
offer.
"It looks as though Emulex is taking the position that this is
not a good thing for them," said analyst Cody Acree of Stifel
Nicolaus.
Broadcom said an acquisition of Emulex would boost earnings next
year, with the deal aiding revenue for both companies through an
improved ability to innovate new solutions for customers and a
broadening of distribution channels.
The Wall Street Journal had reported an offer was likely to be
announced Tuesday.
Broadcom - which specializes in low-cost, high-speed
"system-on-a-chip" semiconductors and software that combines voice,
video data and multimedia applications - reported a first-quarter
net loss of $91.9 million, or 19 cents a share, compared with
year-earlier net income $74.3 million, or 14 cents a share.
Net revenue fell to $853.4 million from $1.03 billion, in line
with the company's January forecast.
Despite the revenue decline, he added, customer bookings
strengthened as the quarter progressed, "which is reflected in our
anticipated sequential revenue growth" this quarter. Broadcom
expects $900 million to $975 million for the second quarter;
analysts' mean estimate, according to Thomson Reuters, was $861.9
million.
Some analysts predicted Broadcom would beat estimates because
its designers tend to be on the leading edge of new trends, such as
Bluetooth, a low-power short-range wireless system that permits
data exchange via mobile and fixed devices.
The company will begin shipping a new chip for set-top boxes
later this year, and in February, Nokia Corp. (NOK) chose it to
supply chipsets for baseband, radio frequency and mixed signal in
its phones.
-By Stephen Wisnefski and Kathy Shwiff, Dow Jones Newswires;
201-938-2310; stephen.wisnefski@dowjones.com
(Jerry A. DiColo contributed to this report.)