Stock Options Cloud Merger Perspectives

By
Michael Hickins |
June 16th, 2009 @ 10:01 am

The acquisition of Sun by Oracle is
casting a large shadow that obscures a couple of other potentially
important acquisitions in the tech world. One acquisition target, niche
storage vendor Data Domain, has rejected an all-cash offer from EMC in favor of what seems like a less lucrative offer from NetApp, while another possible target, networking equipment vendor Emulex, is steadfastly rejecting a hostile bid from Broadcom.

At a time when many investors would be happy for any outcome that
translates into more cash, you have to wonder if management at Data
Domain and Emulex have lost their respective minds. But as usual, their
actions may be more a case of self-interest trumping shareholder
interest — and forget the canards about culture and independence
altogether.

The case of Emulex and Broadcom is relatively straightforward. Emulex claims that Broadcom is undervaluing it and claims it has superior technology and market positioning. Emulex CEO Jim McCluney said in a statement that

Emulex is well positioned for significant and rapid
growth through our leadership in the converged networking market.  We
are securing design wins, in many cases against Broadcom, which is
threatening their current and future Ethernet business.

Management claims this superiority will translate to long-term
shareholder value, but given current market volatility and Emulex’s
historically low trading range (it hasn’t traded over $23.40 in the
past five years), you know something else is afoot.

That something else is McCluney’s compensation, which would actually
take a bit of a hit in the event of a change in control. According to
company filings, the market value of McCluney’s unvested stock options
is around $1.8 million. But the company’s compensation plan provides that McCluney’s vesting

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Posted by Dan Walter

Performensation: Equity Compensation for High Performance Companies.