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Endace’s US buyer gets OIO approval for $156m buyout, continued access to taxpayer funding

California-based Emulex [NYSE:ELX] has won Overseas Investment Office (OIO) approval for its $156 million buyout of New Zealand technology Endace.

The NYSE-listed company adds that access to $11 million in no-strings NZ government grants is safe.

Although most of its staff are in New Zealand, Endace is listed on the London Stock Exchange's AIM Index, and shareholders have yet to greenlight the sale. A January 29 shareholder vote deadline has been extended to February 12. 

Emulex is offering 500 pence per share, valuing Endace at £80.7 million ($NZ156 million) - a whooping 65% premium on Endace's closing price before the all-cash offer was made on December 6, but apparently not enough to move some investors. Endace (AIM:EDA) closed at 477.50 pence yesterday.

“Assurances of continuity have been received for the research and development grants Endace receives from the New Zealand Ministry of Science and Innovation,” Emulex says it a statement issued on Waitangi Day.

Endace most recent taxpayer injection came in the form of $6.7 million in matching funds for research and development for a 36-month period up to December this year.

Economic Development Minister Steven Joyce brushed aside criticism and the number of NZ tech companies that have received government R&D support, only to end up in the hands of overseas buyers.

Foreign companies were welcome to apply for R&D grants, he told NBR OLINE. The purpose of the grants to generate more R&D activity in New Zealand. Lack of capital was addressed by other vehicles, including the NZ Venture Investment Fund, to address the lack of capital.

But that didn't stop founding CEO Selwyn Pellet from indulging in a round of public hand-wringing about the sale (and later a Twitter war with Mr Joyce).

"I remain unhappy about taxpayers' previous R&D investment in Endace now being put in the hands of shareholders (including myself) via the sales process without compensation to taxpayers.  It's an issue that needs addressing in a country strapped for R&D funding,” Mr Pellet told NBR (the Endace cofounder resigned as CEO in 2008 and from the board in 2010. He sold most of his shares in 2010).

Emulex CEO Jim McCluney says his company will keep 190 or so Endace employees in New Zealand, but has stopped short of contractually committing to keep R&D work onshore.

A maker of hardware that is used to monitor traffic on computer networks, Endace was born out of research at Waikato University, and most of its research and development teams still works in a Hamilton office.

Mr Pellet told NBR he expects jobs to say here in the near term - and that he had received personal assurances from Mr McCluney on that score.

"But over time it's anyone's guess what will happen and no one can predict commercial imperatives that drive decisions in the future," the Endace cofounder adds.

Endace 12-month performance on the London Stock Exchange's AIM index (S&P Capital IQ). Endace made a $US1.8 million profit on $US41 million revenue last year. Emulex says it could double turnover.


More by Chris Keall

Comments and questions

The taxpayer funding is not a good idea if the jobs are lost offshore.

This must be a joke. Joyce could channel that to my daughter and let her complete her Masters instead of pulling the plug on her.