Its a cautionary tale for other startups in the same boat: Dont crack open the champagne too soon! Our source at SAN Valley adds, "We are still trying to find a home and have two letters of intent on the table." [Ed. note: For whatever they're worth!] He declined to name the other interested parties.
There's one other plausible reason for Emulex's last-minute change of heart, aside from fearing a negative market reaction. Sources familiar with the deal say Emulex was keen to get its hands on SAN Valleys reseller deal with Hewlett-Packard Co. (NYSE: HPQ). "This channel is important to a number of vendors," notes our SAN Valley source (see SAN Valley Works With Compaq).
Recently Emulex has been losing bids with HP to its rival, QLogic Corp. (Nasdaq: QLGC) a situation Emulex hopes to turn around (see HP Puts QLogic in Blade Server).
But when HP signed an OEM deal with Brocade Communications Systems Inc. (Nasdaq: BRCD) for the Rhapsody technology last month, observers say it pulled the rug out from under the SAN Valley deal, as Emulex raised questions about the validity of the startup's connection with the server vendor (see HP OEMs Brocade/Rhapsody Switch).
SAN Valley sources declined to comment on this piece of the story. Its surely a tough one to swallow as the acquisition represented a lifeline for SAN Valley, which is rapidly running out of cash (see SAN Startups on the Block).
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