(Updates to add details about the bid and previous talks with Emulex, analyst comment; updated stock prices)
DOW JONES NEWSWIRES
Broadcom Corp. (BRCM) launched a bid to acquire Emulex Corp.
(ELX) Tuesday for about $764 million, while announcing that it
swung to a first-quarter loss as revenue fell 17% in the economic
downturn.
The cash offer from Broadcom, of $9.25 per share, represents a
40% premium to Emulex's closing share price Monday. The Wall Street
Journal had reported a deal was likely to be announced Tuesday.
Shares of Broadcom were recently down 7.8% to $20.09 as market
participants digested news of the takeover bid and the
worse-than-expected quarterly results. Emulex shares were up 42% at
$9.40.
A successful acquisition of Emulex already faces some
challenges. In January, Emulex installed a "poison pill" - or
shareholders rights plan - used in defense against hostile takeover
offers. Such pills are meant to discourage offers from rival
bidders, and give a company leverage to negotiate a sweetened
offer.
Broadcom approached Emulex in December about a possible tie-up,
but Emulex wasn't interested in talking, said Broadcom Chief
Executive Scott McGregor in a conference call.
"They basically said no, the company isn't for sale," McGregor
said. Emulex was not immediately available for comment.
Broadcom expects the acquisition of Emulex will boost earnings
next year, with the deal aiding revenue for both companies through
an improved ability to innovate new solutions for customers and a
broadening of distribution channels.
"It looks like it could be a good acquisition for Broadcom,"
said Needham & Co. analyst Quinn Bolton. Emulex would give
Broadcom an entry into the storage and storage networking markets,
an area where Broadcom does not significantly participate.
The enactment of the poison pill and statements from Broadcom
regarding Emulex's dismissal of earlier talks, suggest Emulex isn't
receptive.
"It looks as though Emulex is taking the position that this is
not a good thing for them," said analyst Cody Acree of Stifel
Nicolaus.
As for the earnings report, Broadcom Chief Executive Scott
McGregor said that the company, while stung by the economy, "was
successful in experiencing a lesser peak-to-trough revenue decline
than many of our peers."
Despite the revenue decline, he added, customer bookings
strengthened as the quarter progressed, "which is reflected in our
anticipated sequential revenue growth" this quarter. Broadcom
expects $900 million to $975 million for the second quarter;
analysts' mean estimate, according to Thomson Reuters, was $861.9
million.
Broadcom - which specializes in low-cost, high-speed
"system-on-a-chip" semiconductors and software that combines voice,
video data and multimedia applications - reported a first-quarter
net loss of $91.9 million, or 19 cents a share, compared with
year-earlier net income $74.3 million, or 14 cents a share.
Net revenue fell to $853.4 million from $1.03 billion, in line
with the company's January forecast.
Some analysts predicted Broadcom would beat estimates because
its designers tend to be on the leading edge of new trends, such as
Bluetooth, a low-power short-range wireless system that permits
data exchange via mobile and fixed devices.
The company will begin shipping a new chip for set-top boxes
later this year, and in February, Nokia Corp. (NOK) chose it to
supply chipsets for baseband, RF and mixed signal in its
phones.
-By Stephen Wisnefski and Kathy Shwiff, Dow Jones Newswires;
201-938-2310; stephen.wisnefski@dowjones.com
(Jerry A. DiColo contributed to this report.)