Tuesday, June 30, 2009

Hostilities....Emulex(ELX) vs. Broadcom(BRCM)

AlphaNinja - Yesterday afternoon (nighttime for East coasters) Broadcom raised its hostile takeover bid for Emulex to $11 from $9.25, elevating this ugly battle in the storage networking space. After flatlining around $11 on speculation that the price would be raised, the stock is selling off this morning as the magnitude of the increase has left some dissapointed.

Broadcom first approached Emulex in December. Since then, Emulex has waged a PR battle, with two main points.

1. The Broadcom offer is too low:




And 2. That Broadcom is being "opportunistic." (Often that's called "savvy")






Emulex lays out a path to increased earnings, but as Broadcom correctly points out, it's a "hockey-stick" (very back-end loaded) 2012 projection.





If Emulex is correct and they deliver non-GAAP (excludes stock compensation) earnings of $1.45 per share in 2012, then the stock could trade to 25 or higher, the levels it commanded last year. But that's in 2012 -->> this year they're expected to earn just 54cents. Emulex' credibility has been hurt by missed earnings projections and worries about design wins. $300mil in cash, about 1/3 of the company's market value, makes this stock even cheaper -->>in ELX's view just another reason to rebuff the buyout offer.
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At the end of the day (I love qualifying statements!), the market has not held a very positive view of ELX's prospects, despite management's persistent whining. I completely agree with Emulex that the Broadcom offer is "opportunistic" -->> its' SUPPOSED to be, and that's how a good management approaches acquisitions.

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