Mellanox Discount Widens on Delisting: Israel Overnight

Mellanox Technologies Ltd. slumped the most in more than four months in Tel Aviv as UBS AG cut the company’s rating on plans to delist in Israel.

Shares of the Yokneam Elit, Israel-based Mellanox, which makes data transfer and storage software, dropped 12 percent, the most since Jan. 24, to 182.1 shekels, or the equivalent of $49.38 at the close in Tel Aviv. That follows a similar move in the U.S., where New York-traded shares retreated 7.3 percent to $51.87 on May 31. The company has a 5 percent weighting on the benchmark TA-25 Index, which declined 0.8 percent today.

Mellanox Chairman and Chief Executive Officer Eyal Waldman told a panel on market regulation on May 20 he wants to be traded in Israel “but if it will hurt too much, we will not be here.” Investors will tomorrow learn the twice-postponed results of a vote on whether Waldman will remain as both chairman and CEO for another three-year term. UBS cut its rating on the shares to neutral from buy.

“If the company continues with its delisting plans, we are likely to see a large supply of shares from local investors, especially ETFs as the company exits the indices,” Adar Etzioni, head of research at Migdal Capital Markets Ltd. in Tel Aviv said today by phone. “Some local investors like mutual funds are not allowed to be exposed to companies traded solely overseas.”

Mellanox has tumbled 10 percent in New York since May 20 when it postponed an annual meeting for a second time and on growing concerns that the company wasn’t resolving whether to split the management roles.

Delisting Trigger

The prospect of a shareholder vote was “probably the trigger for delisting, but we just wanted to be under one set of regulations instead of two,” Waldman said in a May 31 phone interview from Tel Aviv.

“We are surprised by the decision to delist and expect some price pressure,” Steven Milunovich, an analyst at UBS in New York, wrote in a May 31 note in which he also lowered Mellanox’s 12-month price target by 16 percent to $57. “Our concern is that some 20 to 25 percent of the shares are held in Israel, which could prompt selling.”

GAM U.K. Ltd. and Oberweis Asset Management Inc. are calling for the roles to be separated. Waldman said on May 17 that large Israeli investors support the split while large investors in the U.S. support the dual role.

Delisting in Israel will save the company “hundreds of thousands of dollars in operating expenses” each year, Waldman said. The company reported total operating expenses of $224.6 million in 2012, according to a Jan. 23 statement.

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