Will $11 a share bring Emulex to Broadcom?
NEW YORK (Reuters) - Broadcom Corp's (BRCM.O) revised bid sweetens the pot for Emulex Corp (ELX.N) shareholders, but the likelihood of a deal depends on whether Emulex's board agrees to come to the negotiating table.
On Monday, Broadcom raised its all-cash offer for Emulex by $147 million to $912 million and turned conciliatory, dropping a previous lawsuit and a consent solicitation.
The higher offer and change of strategy are designed to improve Broadcom's chances of actually buying Emulex, which rejected the chipmaker's initial $764 million bid as grossly inadequate and refused to engage in talks.
"Broadcom's pot sweetener and more conciliatory tone should put added pressure on Emulex's board to at least engage in a dialogue," Oppenheimer analyst Dan Morris wrote in a note.
Still, the revised bid, which raises the per-share price to $11 from $9.25, is no guarantee that Emulex's board will relent, analysts said. Emulex executives have repeatedly told investors the company can independently push up the value of its stock because of strong long-term growth prospects.
Broadcom also turned tough on Monday, saying it is unlikely to entertain a long, drawn-out process. It gave shareholders two weeks to tender their shares.
Broadcom's tough talk and the lack of clarity on Emulex's response fueled fears on Tuesday that an agreement might not be reached, pushing Emulex shares down more than 9 percent.
The shares, which have risen 65 percent since Broadcom's offer, hovered near $10 on Tuesday.
ThinkEquity analyst Rajesh Ghai described Tuesday's trading price as the mid-point of two possible outcomes: either Emulex's board rebuffs the offer, which would push the company's shares to the pre-deal level of about $7, or it negotiates a deal at a higher price of about $12 a share.
"Investors think the probability of either outcome is 50-50," Ghai said. "You would logically assume that Emulex's board would sit down and hammer out a deal with Broadcom," because it is unlikely the company will be able to independently lift its stock price to even $11, he added.
DEAL OR NO DEAL?
Many analysts believe that if Emulex agrees to engage Broadcom in talks, a friendly deal could fetch $12 to $14 a share.
"I think $11 is the price that brings Emulex to the table," said Kaushik Roy, an analyst at Wedbush Morgan Securities. "A deal could get done at a slightly higher price, but lower than $14."
Broadcom, which makes chips for networking and computing gear, could be willing to pay more because it covets Emulex's fiber channel technology. A combined company could better address the emerging market for fiber channel over Ethernet (FCoE), a new technology that helps data centers cope with Internet traffic more efficiently, Broadcom has said.
It is possible that Broadcom could walk away from Emulex and buy or partner with another company, or build its own technology -- part of the rationale behind the Irvine, California-based company's statement on Monday that there were other "value-creating" opportunities besides Emulex. Continued...
