Emulex, the leader in converged networking solutions for data centres, yesterday said that its board of directors has unanimously recommended the company's stockholders to reject Broadcom's  $764-million hostile cash offer.

Emulex said in a statement that the Broadcom offer significantly undervalues Emulex's long-term prospects and does not adequately compensate stockholders for their shares.

Last month, Broadcom, the supplier of integrated circuits for broadband communications, had renewed its bid to acquire Emulex by taking its unsolicited offer of $9.25 per share cash tender, directly to Emulex shareholders, after having been rejected by the company in December 2008. (See: Broadcom launches $764-million hostile bid for Emulex)

The first time when Irvine, California-based Broadcom approached Emulex in December, the chip maker was sent packing by the board of Emulex saying that the company was not for sale. Emulex also immediately amended the company's byelaws introducing poison-pill defences that make it frightfully expensive for any hostile takeover.

Broadcom, then filed a suit in the Delaware court against Emulex and its board for amending the bylaws of the company since the amendment can be done only by shareholders holding more than 66 per cent of outstanding shares of the company.

Emulex said ''After a thorough review with its financial and legal advisors, the board determined that the tender offer significantly undervalues Emulex's long-term prospects and is grossly inadequate, and that the offer and related Broadcom consent solicitation are not in the best interest of Emulex stockholders. The Board therefore unanimously recommends that Emulex stockholders not tender their shares into the offer or sign any gold consent cards received from Broadcom.''

Emulex, the Costa Mesa, California-based company said that Broadcom had clearly timed the hostile bid to take advantage of Emulex's depressed stock price, which has been impacted by the current unprecedented negative macroeconomic conditions.

Emulex argued that in April, when Broadcom once again made the hostile bid, it was aware of significant new non-public design wins by Emulex in converged networking and the offer does not compensate Emulex's stockholders for a range of other initiatives being undertaken by Emulex that will start to meaningfully impact earnings within the next year and beyond.

In view of these facts, Emulex says that Broadcom $9.25 per share cash offer will be funded in significant part by Emulex's own cash, which results in Broadcom actually offering only $5.59 per share to Emulex shareholders.

Scott McGregor, president and chief executive officer of Broadcom, said that his company was disappointed by Emulex Corporation's rejection of Broadcom's proposal which would deliver substantial, immediate and highly certain value to Emulex's stockholders, while further providing significant benefits to customers and employees alike.

Broadcom said that while Emulex has touted its "design wins" in its response to Broadcom and in other communications with the financial community, it has failed to demonstrate an ability to convert design wins into either revenue growth or market share.

Over the last several years, including this most recent quarter, Emulex has continued to lose share to its larger competitor, who said that it continued to gain share in key markets during the most recent quarter, after achieving record net revenues in 2008.

Broadcom also rubbished Emulex's claims that its all-cash offer is not subject to a financing condition. Broadcom said that it intends to fund the offer with its existing cash holdings.

Emulex's technology for transporting information from data centres to storage systems is fast, reliable and difficult to emulate, an area that Broadcom has been trying to enter for years in vain, hence it had become an attractive acquisition target for Broadcom.

Broadcom makes chips for servers but Emulex designs chips that make these servers connect to large storage disks that transports huge amount of data and the combined company could come up with a single chip doing both jobs effectively.

Most analysts feel that Emulex had rejected this offer as too low as the current recession environment is good for buying companies but not selling them.