Hostile Bid by Broadcom to Acquire Emulex

Broadcom Corporation has made a proposal to the Emulex Corporation‘s Board of Directors to acquire all the outstanding shares of Emulex common stock for $9.25 per share in cash, representing a total equity value of approximately $764 million. The offer represents a 40 percent premium above the closing price of Emulex common stock on April 20, 2009, a 62 percent premium to trailing 30 day average price per share and an approximately 85 percent premium to enterprise value.
Broadcom believes that its leadership in Ethernet networking, together with Emulex’s deep expertise in Fibre Channel storage networking, will enable the combined company to accelerate the development of converged solutions for enterprise networks.

This combination offers compelling benefits
to shareholders, customers and employees
of both companies:

Accelerates vision of network conversion which promises significant benefits to customers and the industry.

Creates significant shareholder value for both companies:

Emulex shareholders will receive a substantial premium to the current value of their shares and immediate value, in cash, for their equity stake in Emulex.
Broadcom expects the acquisition of Emulex will be accretive to earnings per share in 2010.
Broadcom expects to increase both companies’ revenue growth through an improved ability to innovate next-generation solutions for customers of both companies, as well as broadening the distribution channels for each company’s products.
Broadcom’s cash offer will be funded from its approximately $2.0 billion of existing cash and marketable securities on hand, with the fundamentals of Broadcom’s capital position remaining strong.

Scott A. McGregor, President and Chief Executive Officer of Broadcom, said: "This combination is strategically compelling and provides significant value to the shareholders of both companies. Broadcom has long and successful experience, through over 40 transactions, of integrating companies into Broadcom, so this is a highly achievable proposal to deliver value to customers and employees of both companies. A combination of Broadcom and Emulex addresses our customers’ growing need to apply the economics of Ethernet to the Fibre Channel storage space to achieve low-cost network converged solutions," Mr. McGregor added. "The logical evolution of the enterprise network is for a transition to a converged fabric architecture that incorporates a broad array of technologies. Our combined entity can be a one-stop shop for key networking and storage technologies for the enterprise and for our industry. Our preference is to proceed in a friendly, collaborative manner, and we hope that Emulex’s Board will see the merits of this combination and appreciate the substantial value being offered to its shareholders."

The combination of Broadcom and Emulex is highly complementary, with little customer or product overlap and compatible workforces. Both companies have highly-skilled engineering employees with expertise in different product areas. Emulex’s employees would benefit from the ability to utilize Broadcom’s vast intellectual property, engineering resources and substantial R&D scale. Broadcom’s employees would benefit from Emulex’s strong position and expertise within the storage market for host bus adapters and diversified channels.

Broadcom expects the operational integration of Broadcom and Emulex to be highly achievable, given the complementary nature of the companies’ businesses. Both companies are headquartered in Orange County, CA.

Mr. McGregor sent a letter to Emulex’s Board of Directors outlining the proposal, with the goal of moving rapidly to the negotiation and closing of a transaction.

Below is the text of the letter that Broadcom
sent to Paul F. Folino,
chairman of the Emulex’s Board of Directors:

April 21, 2009

Dear Paul:

I am writing on behalf of the Board of Directors of Broadcom Corporation to propose that Broadcom acquire all of the outstanding shares of Emulex common stock for $9.25 per share, payable in cash. Our proposal is not subject to any financing condition. We are confident that if we are given the opportunity to engage directly with Emulex we will be able to negotiate a mutually acceptable merger agreement, which we believe we would be able to complete expeditiously.

Significant Premium Without Risk
Our proposal provides an opportunity for Emulex shareholders to receive an immediate and substantial cash premium that offers an attractive and highly certain outcome for their investment. Importantly, our offer reflects a material premium to Emulex’s trading values over recent months, an attractive premium to the April 20th closing price despite the recent run up in value, and a significant premium to analyst estimates of shareholder value that Emulex could expect to create on its own. Specifically, our proposal offers Emulex shareholders the following premiums:

40% to April 20th closing price
62% to the average closing price for the last 30 trading days
Approximately 85% to Enterprise Value (Enterprise Value = Market Equity Value + Debt – Cash & Equivalents)
42% to the Median Analyst 12 Month Price Target

Given Emulex’s substantial net cash and cash equivalents balance and its obvious contribution to your overall equity value per share, approximately $3.46 per share, we think that your investors will find the Enterprise Value premium we are offering, approximately 85%, particularly persuasive. Indeed, by any relevant financial measure – premiums, trading multiples, operating cash flow, or analyst target prices – this all-cash proposal represents a compelling and unique opportunity for Emulex shareholders to realize attractive value now.

Complementary Networking Solutions
Create Compelling Strategic Rationale
As you know, we have believed for some time that a combination of our two companies would benefit both companies’ shareholders and the customers we serve. With that strategic opportunity to meet the needs of the market in mind, we sought to engage you and your Board of Directors in discussions in late December regarding a potential combination of Emulex with Broadcom. We were disappointed when, in early January, you responded that the company was not for sale and abruptly cut off the possibility of further discussions. Even more troubling was the fact that merely one week after that communication, you took actions clearly designed to thwart the ability of your shareholders to receive a premium for their shares. These included adopting a ‘poison-pill’ and amending your bylaws. It is difficult for us to understand why Emulex’s Board of Directors has not been open to consideration of a combination of our respective companies. We would much prefer to have engaged in mutual and constructive discussions with you. However this opportunity is in our view so compelling we now feel we must share our proposal publicly with your shareholders.

Our proposal to combine Broadcom and Emulex will not only provide significant benefits to Emulex shareholders, but also to Emulex’s customers, many of whom we share in common. The architecture of data centers is evolving rapidly, and customers’ desire for system consolidation is driving the need for converged networking solutions where multiple traffic types – such as network, storage and clustering – are all carried over a single network infrastructure. These converged networking solutions promise to enable end users to reduce the overall number of NICs, cables and switch ports required to run their networks, which in turn lowers overall costs, power and cooling requirements, and reduces the time and expense spent supporting and maintaining multiple distinct networks. In the future, the convergence of Fibre Channel and Ethernet "FCoE" will be offered through a single chip solution inside Servers and Switches. Customers will demand from their suppliers advanced chip technology and supply chain scale and reliability which is not an area of strength for Emulex. Broadcom brings tremendous value in advanced chip technology and supply chain scale and reliability to Emulex’s products – and customers.

If we seize the opportunity to combine Broadcom’s deep expertise and leadership in Ethernet networking and fabless SoC development with Emulex’s similarly impressive expertise and leadership in Fibre Channel storage networking these complementary strengths will enable our combined company to accelerate the development and adoption of the converged networking solutions that represent the future.

Enhances Ability to Innovate
and Encourage Product Development
In addition to the development of exciting new converged networking solutions, there are substantial opportunities for this transaction to strengthen Emulex’s existing businesses given our complementary customer profiles and the potential to enhance operational and supply chain scale. We believe the proposed combination would enable us to offer our customers a more complete product portfolio, while enabling Emulex to penetrate business segments where it has historically underperformed. We are particularly excited by the value our combined company will bring to the growing blade server segment, in which Broadcom has a demonstrated track record of innovation and reliable supply to many of the leading OEMs. The combination also will allow us to dedicate more resources to product development and customer support than either company could do separately.
In short, we are confident the innovative integration of our respective technical capabilities will be a winning proposition for our customers – driving a broader set of offerings for the customers of both companies, including better support, lower costs and higher performance solutions.

Just as our combination will offer exciting and tangible benefits for customers, we also believe that a combination will be a rewarding opportunity for Emulex’s employees. We have a great deal of respect for the technical achievements of the Emulex team, and believe the continued motivation and productivity of Emulex’s employees is critical to our combined success. Broadcom has a culture rich in innovation, high quality execution, and a willingness to invest aggressively in the development of new technologies – all of which spell opportunity for the employees of a combined company to do great things. In addition, because our companies’ respective headquarters are located only a few miles from each other in Orange County, California, we hope and expect that we will be able to integrate our teams rapidly and foster a high degree of collaboration and interaction from the very start. It would be our clear intent to strive for continued technological leadership and superior customer service after our two companies are combined.

To move forward quickly, we have retained Banc of America Securities as our financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP as our legal advisor, which, alongside our senior management team, have already completed extensive analysis and due diligence based on publicly available information. Broadcom has a well-established record as an acquiror, having completed more than forty such transactions over the past decade.

We understand your role as directors and your responsibility to act in the best interests of the Emulex shareholders in reviewing and making a recommendation with respect to our proposal and hope you will not take any further actions that would destroy shareholder value or otherwise impede your shareholders’ ability to approve and consummate a transaction. To that end, we are today commencing an action in the Delaware Court of Chancery against Emulex and its Board of Directors to declare invalid that portion of Section 6.4 of Emulex’s recently amended Bylaws that imposes the requirement that the Bylaws may not be altered, amended or repealed by the stockholders without the vote or written consent of 66-2/3% of the outstanding shares. We will also ask the Court of Chancery to enjoin enforcement of that provision as well as any improper actions to impede this proposal or Broadcom’s efforts to acquire control of Emulex.

Of course, our strong preference would be to proceed in a friendly, constructive way to make this exceptional opportunity a reality as soon as possible. After you have had a chance to consider our proposal with your advisors, we would welcome the opportunity to discuss it with you. But please note that regardless of whether you engage with us, we are prepared to submit our proposal directly to Emulex’s stockholders for their approval.

This matter has the highest priority for Broadcom. I look forward to a positive response from you shortly.

Sincerely yours,
Scott A. McGregor
President and Chief Executive Officer

Hostile Bid by Broadcom to Acquire Emulex

For $764 million in cash

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