Starboard Value Acquires 6.9% Stake In Emulex

Starboard Value Acquires 6.9% Stake In Emulex
Starboard Value

Starboard Value, the investment management firm headed by Jeffrey Smith acquired 6.9% of Emulex Corporation (NYSE:ELX), a company the offers connectivity solutions servers, networks, and storage devices for data centers.

Starboard Value

Starboard Value’s Regulatory Filings

The regulatory filing of Starboard Value with the Securities and Exchange Commission (SEC) indicated that it’s firm purchased 6.25 million shares of Emulex Corporation (NYSE:ELX). The move of the investment management firm came after Emulex hired the services of Goldman Sachs Group, Inc (NYSE:GS) to find potential buyers, as reported by Bloomberg, citing sources knowledgeable about the situation.

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In 2009, Emulex Corporation (NYSE:ELX) rejected a proposal by Broadcom Corporation (NASDAQ:BRCM) to acquire the company for $11 per share. Since then, the stock price of Emulex declined. Over the past 52-week range, shares of Emulex dropped to as low as $5.72 per share. On Thursday afternoon, Emulex’s stock is trading around $8.20 a share, down by almost 1%.

Srini Nandury’s Estimation for Emulex Acquisition Price

Srini Nandury, an analyst at Summit Research, believes that Emulex Corporation (NYSE:ELX) will be able to fetch an acquisition price of $9.50 per share, which represents a premium of 43% from the closing price of the stock at $6.66  on July 2 prior to reports that it was exploring potential buyers.

The take out price represents a 1.75x EV/Sales multiple, but Nandury believes it is still cheap considering the fact that it has a compelling IP related to the Fibre Chanel and Ethernet businesses of Emulex Corporation (NYSE:ELX). According to Nandury, the IT industry invested $50 billion in Fibre Channel, thus company’s Fibre Channel will remain over the next five years.

Like Starboard, Emulex is Targeted by Private Equity Firms

Nandury opined that the potential buyers of Emulex could be private equity firms, possibly Broadcom Corporation (NASDAQ:BRCM), Brocade Communications Systems, Inc (NASDAQ:BRCD), Intel Corporation (NASDAQ:INTC), NVIDIA Corporation (NASDAQ:NVDA) and Advance Micro Devices, Inc (NYSE:AMD).

Rajesh Ghai, an analyst at Craig Hallum, recently commented that Emulex Corporation (NYSE:ELX) is an attractive target and he believed that some of the potential buyers are private equity firms. He said, “Just from the cash flow perspective and looking at the valuation, I would think that the company could be bought by a private-equity player.”

The largest shareholder of Emulex Corporation (NYSE:ELX) is Elliot Management Corp, the activist hedge fund managed by Paul Singer. The hedge fund owns approximately a 10% stake in the company. It has appointed two directors to the board of Emulex under a standstill agreement in March, which allows the hedge fund to pursue a proxy fight or initiate a tender offer as early as August 12 on certain conditions.

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