Mellanox CEO Prevails as Shareholders Approve EZchip Acquisition

  • Activist relented after arguing Mellanox 'low-balled' offer
  • CEO Waldman says product with EZchip tech ready in 1.5-2 years

It took a little longer than expected, but Eyal Waldman is getting his way.

The Chief Executive Officer of Mellanox Technologies Ltd., whose products power data-crunching supercomputers, won shareholder approval for his $811 million acquisition of Israeli chipmaker EZchip Semiconductor Ltd. Tuesday, solidifying plans to expand his data-center business.

The Yokneam Elit, Israel-based company had to delay a November vote on the takeover after activist hedge fund Raging Capital Management urged shareholders to block the deal, arguing that Mellanox’s offer of $25.50 per share was a “low-ball price” and that EZchip hadn’t “run a fair and competitive sales process.” A subsequent 30-day "go-shop" period by EZchip failed to produce alternative offers.

Waldman said the merger was driven by the need for more innovation as he tries to win business from cloud data centers used by tech giants like Amazon.com Inc. and Google Inc. The tie-up will allow Mellanox to add cybersecurity and data storage features that enable data center networks to run more efficiently.

Strategic Need

“EZchip is strategic to Mellanox because we wanted to have processing capabilities, which we do not have today,” Waldman said by phone from Tel Aviv Tuesday. “Today Mellanox is an interconnect company without the brains, without the intelligence.”

Mellanox has been trying with its data-center switches to jump ahead of competitors such as Intel Corp. and Broadcom Corp., while EZchip, which makes processors for edge routers in cable and phone networks, had been battling to break out of a multi-year share slump.

The deal will “immediately” boost Mellanox’s revenue and profit, but it will take 1 1/2 to 2 years for the combined company to build products that integrate each others’ technology, Waldman said. Mellanox reports fourth-quarter earnings on Jan. 27.

The deal could add $1 to the company’s earnings per share, according to a Jan. 11 research note by analysts at Credit Suisse Group Inc.

As a result of the merger, EZchip will be delisted from the Tel Aviv Stock Exchange, and Mellanox, which delisted from the exchange in 2013, has no plans to return at this time, Sharon Levin, a spokeswoman for Mellanox, said in an e-mail. The company plans "to retain the vast majority of EZchip employees,” she said. The deal will close in the second half of February.

Mellanox fell 0.7 percent to $38.49 in New York trading Tuesday, the lowest since Oct. 1. EZchip rose 0.8 percent to close at $25.25 and its Tel Aviv-traded shares advanced 0.8 percent at 10:10 a.m. in Tel Aviv.

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