Mellanox-EZchip Merger Faces Activist Raging Capital Proxy Fight

Mellanox Technologies Ltd. faces a fight with activist Raging Capital Management over its $811 million proposed acquisition of EZchip Semiconductor Ltd.

The hedge fund run by Bill Martin, which owns 6.5 percent of EZchip, is nominating two dissident directors and urging shareholders to vote against the deal. In a letter to shareholders Thursday, Martin criticizes the board for failing to run “a robust and rigorous” sale process. The firm is campaigning for a no vote at the Nov. 12 meeting.

Raging Capital, which publicly objected on Oct. 14 to the $25.50-a-share offer, nominated Ken Traub and Paul McWilliams to replace two of the seven-member board.

The “acquisition proposal not only undervalues the existing business and its future potential but Mellanox is also essentially getting” EZchip’s newly developed NPS-400 chip “for free,” Martin wrote in the letter. The merger “appears to be a marriage of convenience.”

Mellanox Chief Executive Officer Eyal Waldman said in an Oct. 1 interview that the deal was driven by the need for more innovation to develop system-on-a-chip. Mellanox has been trying with its data-center switches to jump ahead of rivals such as Intel Corp. and Broadcom Corp., while EZchip, which makes processors for edge routers in cable and phone networks, has been battling to break out of a multiyear share-slump.

“This merger will enable us to bring the processing ability from EZchip and our networking capability to a system-on-a-chip device,” Waldman said in the interview. The technology will make the chip more “intelligent,” enabling it to have cyber security and storage capabilities, among other things, he said.

Martin started Raging Capital in 2006 and manages about $650 million. He also co-founded the RagingBull.com financial website and fund-analytics service InsiderScore.

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