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Analyst Sees Emulex/LSI Combo

LSI Logic Corp. (NYSE: LSI) and Emulex Corp. (NYSE: ELX) are in talks, and a merger could result. So says analyst Tom Curlin of RBC Capital Markets in a note to clients today. The notes states:

    We believe LSI and Emulex are discussing a variety of strategic scenarios, including a combination... We feel the recent management changes at LSI signal forthcoming modifications or enhancements to the company's strategic roadmap. To this end, we believe LSI and Emulex are discussing a variety of strategic scenarios that might benefit both companies.

Curlin suggests that LSI Logic is worried about the partnership Emulex has with and might be willing to pay a hefty premium on Emulex shares to either disrupt or own it. Indeed, Curlin says LSI may be willing to pay up to $24 per share for Emulex, which could put a potential deal at nearly $2 billion or more.

At press time, shares of Emulex were trading at $19.98, up $0.59 (3.07%). Shares of LSI Logic were trading at $10.07, up $0.30 (3.07%). It's not clear whether the increase was due to merger talk or to announcements from both companies, including a new OEM deal between Emulex and Sun Microsystems Inc. (Nasdaq: SUNW). (See Sun, Emulex Strike OEM Deal.)

LSI Logic is keenly interested in preserving a solid component presence. It increased its guidance recently on the strength of its storage components (see LSI Logic Improves Forecast). The vendor is set to announce quarterly results July 27.

It also doesn't hurt that LSI's new CEO, Abhi Y. Talwalkar, and new EVP Jeff Richardson both hail from Intel (see LSI Logic Changes CEO and LSI Logic Names EVP). Presumably, the knowledge these execs have of what's at stake could guide them in decision-making.

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