Executive Chairman Jim McCluney to Leave Emulex

Emulex Corporation announced that its board of directors has approved a $200 million share repurchase program, which at current market prices represents approximately 30% of the company’s outstanding shares.

The company today is announcing a cost savings program that is expected to generate $30 million in annual cost savings over the fiscal 2013 spending level, expanding on the previously announced $10 million cost savings initiative in its connectivity business.

Emulex expects to complete this effort over the next few quarters and will provide quarterly progress updates on the savings, with the full run-rate benefits of this program expected to be realized in fiscal 2015.

These actions are being undertaken to return capital to shareholders while at the same time pursuing significant increases in the profitability and free cash flow of the company.

Finally, Emulex is adding three new executives to the board of directors who will help drive the company’s transformation.

“The board and management team have collaborated with key shareholders to formulate these strategic actions, which reflect our confidence in our underlying business as well as our commitment to enhancing shareholder value,” said Jeff Benck, president and CEO, Emulex. “We have already exceeded our initial goal of identifying $10 million in annualized savings. We expect to achieve the $30 million annualized expense reductions by simplifying our product portfolio, discontinuing additional lower ROI programs, pursuing some consolidation opportunities and identifying further efficiencies. The changes announced mark important initial steps in our efforts to maximize operational efficiency while continuing our revenue growth initiatives, all as part of a strong commitment to generating incremental increases in stockholder value. I will share updates on our progress and next steps on future earnings calls.”

The company announced that it is interviewing industry expert candidates that will be selected to fill three positions that will be identified in its proxy statement as independent nominees to the board of directors. Further, Emulex plans to reduce the size of its board from 12 to 11 directors.

Benck continued: “In pursuit of our strategic goals, the Emulex board has determined that now is the appropriate time to bring additional external talent to the board as we continue to work to increase shareholder value.”

“We are very pleased with today’s announcement of Emulex’s shareholder value plan,” said Jesse Cohn, portfolio manager, Elliott Management Corp., which manages funds that together are the largest shareholder of Emulex. “The meaningful cost reduction initiatives, the plan to return significant capital to shareholders and the board transformation at Emulex are all positive steps marking a renewed commitment to and focus on value at the company. We worked collaboratively with the Emulex board, Jeff and the rest of the management team to review these plans, which we believe have great potential to create significant value for shareholders both in the near and long term.”

The Emulex board has approved a $200 million share repurchase program to commence immediately. The company expects that the initial $100 million will be completed through the combination of individually negotiated transactions and entry into an Accelerated Share Repurchase program (ASR). Additional information about the ASR will be filed with the SEC, and it is currently anticipated to be completed by end of fiscal 2014. Subject to market conditions and business outlook, the company expects to initiate the second $100 million return of capital program immediately after the completion of the ASR. It expects to fund the share repurchase program with working capital and financing sources available to the company.

The timing and amount of any shares repurchased will be determined by the company’s management based on its evaluation of market conditions, the trading price of the stock, the company’s cash needs, securities law limitations and other factors. The repurchase program may be suspended or discontinued at any time.

Emulex expects to take a material incremental charge related to the further operating expense reductions in the company’s GAAP results and cash flows for the second quarter of 2014.

The company also announced that its executive chairman, Jim McCluney, will be continuing with the company through February 6, 2014, after which he will depart in accordance with his employment agreement, and he will not stand for re-election to the board of directors at the next annual meeting of stockholders.

“I am pleased to support Jeff Benck in a successful transition for the benefit of the company, its stockholders, employees and customers,” said McCluney.

“Jim has impressed me with the way he always put the customers first, the kind of deep partnerships he built, and his commitment to invest for the future. Jim will be deeply missed by the Emulex family, and we want to thank him personally for his service and devotion to the company,” Benck concluded.