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As we suspected, networking chipmaker Emulex Corp. (NYSE:ELX) isn't rolling over in light of Broadcom Corp.'s (NASDAQ:BRCM) $764 million unsolicited takeover offer. Emulex Monday rejected the offer, which was made on April 21, saying it undervalued the company and sought to take advantage of the chipmaker's depressed stock price. (The Deal Pipeline subscribers can read more about Emulex's rejection here.)
Given the lack of success of the handful of other unsolicited offers in the past year, the news hardly comes as a surprise. Many of the failed deals aimed to consolidate maturing industries by marrying the top players in a market, a feat that has never been easy, especially in the semiconductor realm. When one adds a hostile element to the deal attempts, the odds for success shrink dramatically. Chip design software company Cadence Design Systems Inc. (NASDAQ:CDNS), for example, withdrew its $16 per share, or $1.6 billion, hostile cash bid for rival Mentor Graphics Corp. (NASDAQ:MENT) in October, thanks to Mentor's unwillingness and a difficulty in obtaining financing. That same month, Samsung Electronics Co. Ltd. yanked its unsolicited $5.9 billion bid for rival flash memory maker SanDisk Corp. (NASDAQ:SNDK). In February chipmaker Microchip Technology Inc. (NASDAQ:MCHP) gave up on a $2.3 billion bid for Atmel Corp. (NASDAQ:ATML). It seems it is all too easy for an unwilling target to convince shareholders that a premium offered by a potential acquirer in this climate is nothing compared to what the company can do on its own, once macroeconomic conditions improve. In the chip industry, however, no matter how much the economy improves, going it alone as a midtier player is increasingly tough. That said, Emulex's refusal does seem to put Broadcom in a challenging position. JMP Securities analyst Alex Gauna argues that Broadcom's offer exposed the company's need to plug an upcoming hole in its revenue stream because of networking chip design wins by Emulex. Gauna writes in a research note Monday: "This development puts Broadcom in a messy bind wherein it will either need to up its bid for Emulex or face uncomfortable questions regarding its CNIC [converged network interface card] roadmap now brought to light of day by Emulex. We have no material insights as to how Emulex will respond, but the tenor of its letter to Broadcom does not sound encouraging. "Because the Emulex position is uniquely threatening to Broadcom, we do not see other industry players being motivated to come in over the top of Broadcom to make a more aggressive bid." - Olaf de Senerpont Domis
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