Elliott Associates Sets Its Eyes on Emulex Corp.

Conclusion: Elliott Associates gets results.  We expect Emulex to structure a transaction for shareholder benefit in the medium term.

We are a bit late to this party, but we are adding Emulex Corp. (ELX) to the Opps Tracker, prompted by the large stake owned by the awesome Elliott Associates funds.

Here’s the breakdown:

Emulex has been sucking wind lately, beginning 2012 at $7.03/share before quickly shooting to the $11.00/share range in Spring 2012, presumably on favorable earnings announcements and projections of positive outcomes from some nasty litigation and takeover antics from Broadcom Corp. (BRCM).  And then, [cue “Behind the Music” voiceover about spinning out of control . . .]

  • Quarter-to-quarter earnings began to slip as you can see for the quarterly numbers below:
January 1, 2012
April 1, 2012
September 30, 2012
Net Revenues
Net Earnings
Net Revenues
Net Earnings
Net Revenues
Net Earnings
$128.7 M
$15.0 M
$125.7 M
$8.7 M
$119.2 M
$657 k
  • the consequences from the adverse jury verdicts in its patent litigation with Broadcom were emerging, such as injunctions against certain Emulex products and forced royalties to Broadcom.  In addition, retrials on various claims were scheduled, but Emulex stated that the uncertainty would continue for at least a year;
  • Emulex and Broadcom reached a partial settlement that resulted in some limited licenses to Emulex and a $58 million license fee to be paid by Emulex to Broadcom.  The remaining claims were not settled or released; and
  • in response to a Broadcom acquisition proposal in April 2009, Emulex instituted a share repurchase plan.  As of April 1, 2012, it had repurchased approximately 9.0 million shares of its common stock for an aggregate purchase price of approximately $78.4 million at an average purchase price of $8.67 per share under this plan, including 2.9 million shares for an aggregate purchase price of approximately $20.1 million at an average purchase price of $6.83 per share were purchased during the nine months ended April 1, 2012.

The share prices fell sharply after March 2012, trading between the low-$6’s and the mid-$7’s.

Then, in walks Paul Singer’s Elliott Associates, L.P.  We previously discussed one particularly awesome story about Elliott trying to foreclose on the Argentine navy in an Underdisclosed.com post.

Elliott Associates is an activist investment fund with a strong history of promoting shareholder interests and “encouraging” issuer transactions, such as:

Elliott Associates filed a Schedule 13D in November 2012 disclosing a 9.96% stake and some additional derivative positions in EmulexElliott Associates also provided plain vanilla disclosure regarding their investment purpose:

“From time to time the Reporting Persons may express their views to management, the Board of Directors of the Issuer, other shareholders or third parties regarding the Issuer or its securities. The Reporting Persons may also formulate positions, plans or make proposals with respect to the Issuer.”

Translation:  “We have some ideas about how you can do better for the shareholders.  Details to follow.”

In the 60 days prior to the filing, Elliott Associates has purchased a net 4.7 million shares for a weighted average price of $6.88/share.  In sum, Elliott Associates disclosed a holding of 8.9 million shares, an aggregate purchase price of $65.7 million and an average purchase price per share of $7.36.

The stock price has continued to bounce around the $6’s and $7’s, closing at $7.41 prior to this writing.  Elliott Associates did not invest for a 0.6% increase over its average cost of purchase.

This may be a long-term play, but it is going in our Opps Tracker.  We are looking forward to how Elliott Associates’ strategy plays out.

Emulex Form 10-Q (January 2012)
Emulex Form 10-Q (April 2012)
Emulex Form 10-Q (September 2012)
Emulex Form 8-K – Broadcom Settlement 
Elliott Associates Schedule 13D
Elliott Associates Schedule 13D/A

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