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We were wondering when the next unsolicited takeover proposal would land in the tech sector, but who would have thought it would come from communications and networking chipmaker Broadcom Corp. (NASDAQ:BRCM)? (Pipeline subscribers can read more about the deal here.)
During a conference call Tuesday afternoon to discuss Broadcom's earnings, president and CEO Scott McGregor shed a little more light on his company's unusual bid for the smaller rival Emulex Corp. (NYSE:ELX). Not only is it the first time Broadcom has teed up a potentially hostile deal, but Emulex represents its first public target -- its other acquisitions have involved private, usually small, technology companies. "This is definitely an atypical acquisition for Broadcom," McGregor told analysts, according to a transcript filed with the Securities and Exchange Commission. "It is our first public company and so as such, it had to pass maybe a higher bar than normal." The deal also would represent a major technological expansion for Broadcom, the executive said. Broadcom has focused a lot of its attention on Ethernet, the longstanding, widely used interconnect technology that stitches together enterprises' local area networks. Emulex's forte is so-called fibre channel technology, used primarily in storage area networks. As with so many other big-ticket deals in the past year or two -- Brocade Communications Systems Inc.'s (NASDAQ:BRCD) $3 billion acquisition last year of Foundry Networks Inc. is a perfect example, Oracle Corp.'s (NASDAQ:ORCL) $7.4 billion bid Monday for Sun Microsystems Inc. (NASDAQ:JAVA) fits in there too -- Broadcom wants to be a part of a future where data centers connect and communicate over a converged network that relies on one unified interconnect technology. It could take years for this to happen, but now is the time to develop or gather up the blocks to build this vision. "We certainly have some Fibre Channel investments we have made, but certainly not to the depth of Emulex," McGregor said. "We believe customers' desire for system consolidation is driving a greater and greater need for converged networking solutions, where multiple traffic types such as network storage and clustering are all carried over a single network infrastructure." The rationale behind the deal is certainly there. But Emulex, so far, isn't coming willingly. Broadcom approached the company back in December, but Emulex wasn't interested in a deal and "summarily said the company wasn't for sale," McGregor recalled. "That was obviously disappointing," he said. If past unsolicited tech acquisition attempts offer any hints about whether Broadcom will succeed in taking Emulex, there may be more disappointment in store. Several recent hostile moves fell apart when the unwilling target dug in its heels and simply waited for its unwelcome suitor to go away. This happened with Cadence Design Systems Inc., which last summer aborted its hostile, $1.6 billion move on smaller chip design software maker Mentor Graphics Corp. In October, Samsung Electronics Co. Ltd. yanked a $5.9 billion unsolicited bid for the unwilling memory chip maker SanDisk Corp. (NASDAQ:SNDK). Broadcom is an accomplished acquirer, having sealed 40 acquisitions during the past 15 years. Emulex on Tuesday acknowledged it had received Broadcom's offer, but we still await its board's recommendation to shareholders. With the market and stock values the way they are, we would be very surprised if Emulex comes right out and accepts Broadcom's $764 million offer. - Olaf de Senerpont Domis
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