A second shareholder advisory group has come out with a report against Irvine-based Broadcom Corp.’s proposals that would change board members and make it easier to acquire Costa Mesa’s Emulex Corp.
McLean, Va.-based Proxy Governance Inc. recommended against four out of five of Broadcom’s proposals and said that Emulex, a maker of electronics for data storage networks, is worth more than Broadcom’s $764 million bid.
“This proposal to call a special meeting is part of a larger strategy to compete that acquisition of the company at a price the board has already rejected as undervalued,” the report showed.
Proxy Governance did allow for one of Broadcom’s proposals seeking to amend Emulex’s bylaws to allow a special meeting to be called with the agreement of 10% of Emulex’s shareholders.
In January, Emulex enacted so-called “poison pill” initiatives to fend off a potential Broadcom bid, which was made public in April.
At that time, Emulex amended its bylaws to require two-thirds of its shareholders’ consent to call a special meeting. The previous law allowed a simple majority of shareholders to call a meeting.
Emulex is looking to ratify the bylaw changes at its annual meeting in November. Broadcom, meanwhile is seeking to reverse them in a lawsuit in Delaware court.
Proxy Governance said it “generally believes shareholders should have the ability to call special meetings, as long as the threshold is not so low (below 10%) as to be disruptive,” it said in the report.
Broadcom counted this tacit endorsement of one of its proposals as a win and called it “the single most important proposal before Emulex shareholders.”
“Proxy Governance’s recommendation today in favor of the right of shareholders to hold a special meeting is a positive development that shifts the leverage away from Emulex’s insular board, and reinforces our view that Emulex shareholders should be given the right to make their voices heard at a special meeting of shareholders,” said Chief Executive Scott McGregor.
Proxy Governance made a case for Emulex continuing to stay independent.
“As the company’s operations and financial health remain robust, indicating there is no intrinsic need to sell the company at all, we do not believe support for this proposal is warranted,” the report showed. “An unsolicited buyout offer does not obligate a board to sell the company at a discount.”
Broadcom recently sent out a mailing to Emulex shareholders seeking a special meeting to consider proposals that would change Emulex’s bylaws to be more favorable to Broadcom.
“The proposals would give Emulex shareholders more rights and a forum to express their interests without any future obligations to tender shares, agree to a sale, or add or remove Board members,” the company said in a statement Wednesday. “At the meeting, Emulex shareholders could vote in whatever manner they feel best represents their interests.”
Emulex has repeatedly encouraged shareholders not to consent to a meeting held by Broadcom and to hash out any discussions at its annual meeting in November.
“We believe in this case the special meeting Broadcom seeks is nothing more than an attempt to further their inadequate offer,” said Emulex Chief Executive Jim McCluney. “Our annual meeting on November 19 will provide a truly open forum for stockholders to express their views and vote on our entire board.”
The Proxy Governance report comes two days after an initial recommendation against Broadcom’s proposals by San Francisco-based Glass Lewis & Co.
*For more on that,
read the Business Journal article.
Glass Lewis, Proxy Governance and similar agencies are hired by large institutional investors to advise shareholders on routine proxy votes, mergers and acquisitions and related issues.
