Broadcom may pay more for Emulex; IPC rejects Validus; Axsys deal requires no divestments

By Cristal Cody

Tupelo, Miss., June 9 - Broadcom Corp. hinted Tuesday that it could raise its takeover bid for Emulex Corp. if the company would release private information.

An analyst told Prospect News on Tuesday that Broadcom has room to increase the $9.25-a-share offer to up to $13.00 a share.

Also on Tuesday, IPC Holdings, Ltd. rejected the sweetened offer from Validus Holdings, Ltd. and continued to recommend shareholders vote Friday in favor of its transaction with Max Capital Group Ltd.

In other situations, a market source said Tuesday that while General Dynamics Corp.'s acquisition of Axsys Technologies, Inc. is expected to clear regulatory reviews, the merger agreement does not require any antitrust divestments.

Meanwhile, Wall Street ended mixed on Tuesday.

The Dow Jones Industrial Average fell 1.43 points, or 0.02%, to 8,763.06.

The Standard & Poor's 500 index gained 3.29 points, or 0.35%, to close at 942.43, and the Nasdaq Composite index added 17.73 points, or 0.96%, to close at 1,860.13.

Broadcom, Emulex battle

Emulex has rejected Broadcom's hostile offer of $764 million, or $9.25 a share, as too low.

Ruben Roy, an analyst with Pacific Crest Securities, Inc., told Prospect News on Tuesday that Broadcom could increase its offer.

"For Broadcom, it would still be a valid acquisition at a higher level," he said. "My math suggests it's accretive to Broadcom's model up to the $12.50-$13.00 range. Above that type of level, it doesn't make sense from Broadcom's perspective."

On Tuesday, Broadcom disclosed an e-mail exchange between company president and chief executive officer Scott McGregor and Emulex president and CEO Jim McCluney in a consent statement filed with the Securities and Exchange Commission.

McGregor suggested Broadcom might be willing to raise its bid in an e-mail he sent to McCluney on Monday.

Broadcom had extended its tender offer for Emulex shares to June 17 from June 3 after less than 3.00% of shares were tendered.

"While Broadcom must and will be financially disciplined and needs the overall terms to make sense when compared with our other alternatives, we are open to discussing all terms of a potential transaction," McGregor said in the e-mail. "If Emulex can justify a valuation that is not ascertainable from public information, we would consider it."

McCluney rejected McGregor's request for detailed company information.

In the consent statement, Broadcom also asked Emulex shareholders to approve a company bylaw amendment to call a special meeting to vote on the offer.

"I wouldn't call them losing yet," Samuel Wilson, an analyst with JMP Securities LLC, said in an interview Tuesday. "We're still in the early innings."

Emulex on Tuesday announced that its annual shareholders meeting will be held on Nov. 19.

"We look forward to our annual meeting in November where, as usual, our stockholders will have an open forum to express their views and the opportunity to vote on our entire board," McCluney said in a statement. "Broadcom has erroneously suggested that we would not hold Emulex's annual meeting until 2010 and that their consent solicitation provides the only viable forum for stockholders to express their views."

Shares of Emulex, a Costa Mesa, Calif., storage networking company, fell 2 cents, or 0.19%, to close Tuesday at $10.58.

Broadcom's stock jumped $1.43, or 5.54%, to $27.25. The Irvine, Calif.-based company provides semiconductors for wired and wireless communications.

IPC vote Friday

IPC Holdings said Tuesday in a statement that Validus' revised bid "continues to be a significant discount to IPC's book value and represents a mere $0.12 increase above Validus' previous offer."

Validus increased its offer on Monday by 75 cents to $3.75 in cash for each IPC share and 1.1234 Validus shares.

IPC chairman Kenneth L. Hammond said in the statement that the deal with Max Capital should close next week if both companies' shareholders approve the deal to combine the Bermuda reinsurance firms.

In the $912 million stock transaction, Max shareholders would receive 0.6429 of an IPC share for each Max share, and IPC shareholders would receive a $2.50-a-share cash dividend after the merger closes.

"As we have also told our shareholders, Validus' claim that it can complete an acquisition of IPC with speed and certainty is simply wrong. It cannot be completed until mid-August, at the very earliest, even assuming that IPC were to proceed with Validus on a friendly basis," Hammond said.

"Even that very optimistic timing puts us well into hurricane season and if there is a major catastrophe event Validus could walk away from whatever is on the table and there could be no deal with any other party."

Last week, RiskMetrics Group Inc. recommended against the transaction with Max Capital, while proxy advisory firms Proxy Governance, Inc. and Glass, Lewis & Co. supported the combination.

IPC shares rose 1 cent, or 0.04%, to close Tuesday at $26.98, while Max Capital's stock gained 14 cents, or 0.85%, to $16.60.

Shares of Validus dropped 54 cents, or 2.23%, to $23.69.

No General Dynamics divestures

General Dynamics announced the $643 million acquisition of Axsys on Thursday.

The Falls Church, Va.-based defense contractor said it will acquire the Rocky Hill, Conn.-based Axsys, which produces surveillance and imaging systems, for $54.00 a share.

The companies' products lines mostly are complementary and the deal should close in the third quarter, a market source said Tuesday.

"The merger is conditional on Axsys shareholder approval, HSR clearance and other standard conditions, but the agreement does not contain any conditions which are out of the ordinary," the source said.

Although the buyout is expected to receive Axsys shareholder approval and clear regulatory reviews, "the language of the merger agreement suggests that General Dynamics may not be willing to consider any divestments to gain antitrust approval," the market source said.

"Under the merger agreement, General Dynamics is not required to consider divestments," the source said. "On this basis, in the unlikely event that the merger receives a second request, General Dynamics could allow the merger to lapse."

Axsys shares closed down 8 cents, or 0.15%, to $53.36 on Tuesday.

General Dynamics' stock lost $1.21, or 2.00%, to $59.25.

Mentioned in this article:

Axsys Technologies, Inc. Nasdaq: AXYS

Broadcom Corp. Nasdaq: BRCM

Emulex Corp. NYSE: ELX

General Dynamics Corp. NYSE: GD

IPC Holdings, Ltd. Nasdaq: IPCR

Max Capital Group Ltd. Nasdaq: MXGL

Validus Holdings, Ltd. NYSE: VR

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