Costa Mesa’s Emulex Corp., a maker of electronics for data storage networks, said Monday it’s set to buy Sunnyvale-based ServerEngines Corp. for about $159 million in cash and stock.
Under the terms of the deal, which is expected to close next month, Emulex is set to pay $78 million in cash and roughly $81 million in stock.
It could tack on another 4 million shares if ServerEngines meets certain business goals, the company said.
The two companies have a close relationship.
Emulex partnered with ServerEngines more than a year ago to get into a market known as converged networking.
Emulex’s converged network adapters—essentially circuit boards with chips that bring the speed of specialized data networks to everyday networks of servers and desktop computers—contain ServerEngines’ Ethernet technology.
Converged networking is seen as the biggest development in corporate networks in years and is set to play out in the next few years.
“Over the past two years, our partnership model with ServerEngines has been an extremely effective strategy to establish Emulex in both the 10 gigabit Ethernet and converged networking markets,” Chief Executive Jim McCluney said. “The combination provides a significant opportunity to solidify Emulex’s Ethernet-driven network convergence strategy for 2011 and beyond.”
ServerEngines has about 170 employees, primarily engineers, based in Sunnyvale, Austin, Texas, and Hyderabad, India.
McCluney said the deal is set to add roughly $12 million to Emulex’s top line starting next year.
Initially Emulex’s earnings are set to take a hit on acquisition costs.
For the current quarter, the company said it’s now expecting profits of $12 million to $14 million, a range that falls short of analysts’ average expectation of $14 million in profits.
Emulex expects to report sales of $100 million to $103 million, which at the high end would fall in line with analysts’ expectation of $103 million in revenue.
ServerEngines was founded in 2004 by former Broadcom Corp. engineers who came to the chipmaker when it bought Silicon Valley’s ServerWorks for $1.8 billion in 2001.
ServerWorks is Broadcom’s unit for network chips that go after converged networks.
ServerWorks founder Raju Vegesna parted ways with Broadcom in 2003 over what the company called “operational issues and the strategic direction.”
In 2004, Vegesna and the other two founders of ServerWorks, Sujith Arramreddy, technology chief, and Sai Gadiraju, head of engineering, founded ServerEngines and funded the company themselves.
About a year ago, Emulex talked up its relationship with ServerEngines amid a protracted, hostile takeover bid by Irvine-based chipmaker Broadcom.
Some analysts, at the time, viewed Emulex’s decision to go with ServerEngines over Broadcom’s ServerWorks as a key impetus for Broadcom’s bid for Emulex.
Converged networking is what attracted Broadcom to Emulex.
In late 2008, Broadcom quietly offered $764 million for Emulex then went public with its offer in early 2009.
Emulex rejected the offer several times, prompting Broadcom last June to up its ante to $912 million, which also was rejected. Broadcom dropped its bid a month later.
The takeover drama pitted some of the county’s most high-profile executives against each other and saw the companies trade barbs, lawsuits and occasional personal attacks.
Emulex had a recent market value of $783 million.
