Orange County Register

Scott McGregor

Broadcom Corp. Chief Executive Scott McGregor says his proposal to pay $764 million for Costa Mesa-based network storage company Emulex Inc. is good for shareholders, employees and technological development. McGregor talked to the Register after announcing the takeover plan and his company’s loss of $91 million during the first quarer of 2009. Some excerpts:

Q. Why did you announce this proposal today?

A. Because we were ready. We’ve been working on this for a while.

Q. It wasn’t to divert attention from the fact you lost $91 million during the first quarter?

A. No. We exceeded analysts’ expectations for revenue and profitability.

Q. You announced layoffs after the fourth quarter. Do you plan any more layoffs?

A. No. We guided up our revenue forecasts to between $900 million and $975 million, that’s about 10% up from Q1. We think a lot of our customers slammed on the brakes in the last quarter and now we’re into a more normal ordering pattern.

Q. Why did Emulex reject your offer?

A. That’s a better question to ask them.

Q. Why do you want to buy Emulex?

A. There are a lot of reasons it makes sense for shareholders, for the technology and for the people at the companies. From the technology perspective, it accelerates our ability to bring together fibre channel (host bus adapters), which connect disk drives and data storage networks, and the ethernet. Fibre channel is like a high-speed highway but its limited to certain kinds of vehicles. Ethernet is open to all traffic, but before now it hasn’t been as high speed. For shareholders, it’s a great payday. Look at what the stock did today (closing at $9.70, up 48% for the day). From the people side, Broadcom is a Fortune 500 company, a proven leader in networking with a great track record for integrating new companies. It’s the opportunity of a lifetime for Emulex employees.

Q. Did you consider buying QLogic, another Orange County company with a similar product line to Emulex?

A. We felt Emulex was the best opportunity, but we have other plans if necessary. We approached Emulex in December and they said they didn’t want to sell the company. We were disappointed, but we’re still interested.

Q. They approved a poison pill defense to prevent a hostile takeover. You filed a suit in Delaware court today to overturn the poison pill plan. Don’t you think that will make things harder?

A. Our preferred strategy and strong hope and expectation is this turns into an amicable transaction. Obviously in case that doesn’t happen, we have other plans.

Q. Broadcom has bought about 40 other companies. How is this different?

A. This is our first transaction of a public company. We mostly look for startups for their technology. This is more mature. We felt it was faster to buy them for their technology than to develop the technology ourselves.

Q. Given what happened to the stock today, have you thought about raising your offer?

A. We made an incredible offer. Their stock went up an instant 40% and 60% above their trading average of the last 30 days.

Q. Is this situation different because both of the companies are in Orange County and you might run into the executives of Emulex at the symphony?

A. Somebody told me our headquarters are seven miles apart. That makes it easier because you don’t have to relocate people. Management knows each other. This is a great business opportunity. At the end of the day, our goal is to say: We’re friends; let’s make this happen.

Q. Are you planning on making other acquisitions soon?

A. This is a perfect time to be looking for acquisitions for us. We have about $2 billion in cash and no debt. We generated about $900 million in cash in 2008 and $100 million in Q1 of this year. Emulex has about $200 million in cash. The net price of the purchase is about $500 million. We’ve kept a lot of our powder dry for more.

To see Broadcom’s analysis of the Emulex purchase, CLICK HERE.

To see Emulex’s statement on Broadcom’s purchase offer, CLICK HERE.

More stories on Orange County tech companies …

You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.