Starboard Says Emulex Needs New Board, Strategy

Investment firm Starboard Value LP, which owns 7.9 percent of Emulex Corp., said the chipmaker needs new board members, a new strategy and financial discipline.

Starboard is increasing the pressure on Emulex as it seeks improvements at a company that hasn’t reported an annual profit since 2009. Investor concern that spending hasn’t produced results is hurting the share price, Starboard said.

“We believe that shareholders are skeptical of management’s ability to properly allocate capital and manage expenses,” the investment firm said today in a letter to Emulex management.

Emulex shares rallied as much as 7.8 percent after the letter was made public. The stock increased 1.6 percent to $7.85 at the close in New York. Jolene Bonina, a spokeswoman for the copmany, didn’t respond to requests for comment on the letter.

Emulex, based in Costa Mesa, California, sells chips that help computer servers and storage networks transfer data. It has been a target of activist investors including Elliott Management Corp. Starboard said in July that it had acquired a stake in the company.

Technology Activism

Emulex joins a number of technology companies that have been targeted by activist investors. In August, Microsoft Corp. signed an agreement to cooperate with activist fund manager ValueAct Capital Partners LP that included giving the shareholder a seat on its board next year. Data-storage company NetApp Inc., under pressure from Elliott to boost shareholder value, said in May it was cutting jobs and returning cash through stock buybacks and dividends.

While billionaire Carl Icahn gave up last week his fight to scupper Michael Dell’s buyout of Dell Inc., the surrender followed a months-long campaign to derail the deal and resulted in a sweetened offer. Icahn also disclosed a “large” stake in Apple Inc. in August, months after the company boosted its share repurchases following the urgings of hedge-fund manager David Einhorn.

Emulex has made several moves to respond to critics. It hired Goldman Sachs Group Inc. to seek potential buyers, two people with knowledge of the situation said in July. They asked not to be identified because the process is private.

Emulex also moved former Chief Executive Officer Jim McCluney to the executive chairman role in July, replacing him with Jeff Benck, who moved up from the chief operating officer position.

Forward Strategy

In its letter, Starboard said it was disappointed with Emulex’s fiscal fourth-quarter results and said the company is “extremely undervalued.” The investor added, “While we recognize the Company has recently made a management change, it is unclear at this juncture whether the strategy going forward will be materially different from the past.”

The chipmaker should also discontinue the practice of appointing former CEOs to its board, which is a “terrible habit,” Starboard said.

In 2009, Emulex rejected an $11-a-share bid from Broadcom Corp., saying the offer undervalued the company.

Ian King in San Francisco at +1-415-617-7171 or

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