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Update: Broadcom’s McGregor Weighs In; Ball in Emulex’s Court

The ball now is in Emulex Corp.’s court.

The Costa Mesa-based maker of electronics for data storage networks confirmed Tuesday it had received a $764 million buyout offer made by Irvine-based chipmaker Broadcom Corp.

Broadcom is offering roughly 40% more than what Emulex closed at on Monday.

“The board will review the proposal in due course, consistent with its fiduciary duties,” Emulex said in a short statement. “There is no need for Emulex stockholders to take any action at this time.”

Emulex said it hired Goldman, Sachs & Co. and law firm Gibson, Dunn & Crutcher LLP as advisers.

Broadcom went public with its offer for Emulex after approaching Emulex’s Executive Chairman Paul Folino in December. An initial offer was rebuffed.

(For more on this story,

read the earlier Business Journal article.

)

In a letter to Emulex’s board Tuesday, Broadcom Chief Executive Scott McGregor said the chipmaker was disappointed when Emulex said it wasn’t for sale “and abruptly cut off the possibility of further discussions.”

McGregor described his relationship with local tech veteran Folino as “amicable.”

He said the next move is in the hands of Emulex’s directors and its shareholders.

“We have gone directly to the shareholders by making our letter public,” McGregor said. “We believe they will evaluate the letter fairly and get back to us. Our strong preference is that this becomes an amicable deal.”

He said that Emulex was a good acquisition fit for a number of reasons.

“It would really create significant shareholder value for both companies,” McGregor said. “For Broadcom, a deal would be accretive to earnings right way. And it’s a very good pay day for Emulex’s shareholders.”

A deal also makes sense from an employee perspective, McGregor said.

“There is a people side to this that’s really important,” he said. “Our headquarters are just about seven miles apart. For an Emulex employee, this is the opportunity of a lifetime to join Broadcom, a Fortune 500 company and technology leader. Broadcom has a very strong track record for acquisitions,they work out well for the employees of the acquired company. We’ve retained almost all of the employees we’ve acquired and kept them in meaningful roles.”

On the technology front, a deal would boost Broadcom in the market for chips and circuit boards that link computers serving up data for corporations, banks and others.

It would also shake up the longstanding rivalry between Emulex and Aliso Viejo-based QLogic Corp., which spun off from Emulex in 1994.

Emulex and QLogic dominate the market for what are known as host bus adapters, profitable electronics that link computers serving up data on a network.

Broadcom’s bid is driven by an emerging market for Emulex and QLogic: chips and circuit boards that bridge faster, specialized data networks with cheaper, everyday networks of servers and desktop computers.

QLogic and Emulex are angling for early design wins for the technology, known as fibre channel over Ethernet. The technology is expected to start taking hold in the next few years.

Broadcom makes chips for networks, consumer electronics, wireless phones and desktop computers.

An Emulex buy would build on the company’s business making chips for servers, routers and other networking gear.

“We see this as an opportunity based on where customers are in their planning cycles and where we see the technologies we want to deploy,” McGregor said. “We have some fibre channel efforts and have done a fair amount of investment already. We believe a deal would greatly accelerate our ability to deploy fibre channel solutions for our customers.”

He declined to say whether QLogic was in the running for a potential buyout.

“We certainly looked at other opportunities, but our focus was on Emulex,” McGregor said. “We believe that where they are with their product cycle was the best fit for us. Our focus is on closing the deal with Emulex.”

QLogic’s shares rose about 20% at close of trading on the news as investors likely interpreted Broadcom’s aggressive move to go after Emulex as raising its potential as a buyout target. QLogic had a recent market value of $1.7 billion.

As usually is the case for potential acquirers, Broadcom’s shares fell about 6% at close of trading on the acquisition news. It had a recent market value of $10 billion.

Emulex’s shares jumped more than 45% at close of trading to match Broadcom’s premium on a market value of $788 million.

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