When Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX) chairman, president and CEO Eyal Waldman decided to take the InfiniBand developer public in 2008, he probably did not foresee Amendments 16 and 20 of the Securities Law, which have come into effect in the past two years. These amendments greatly empowered minority shareholders in companies when it came to insider deals.
The amendments have reached Mellanox's general shareholders meeting, where Waldman made the ultimate threat by a manager of a successful dual-listed company: to delist it from the Tel Aviv Stock Exchange (TASE). "Regulation here has become problematic," said Waldman at the "Globes"-BDO Ziv Haft Capital Markets Conference on Monday. "We are considering whether to continue being traded here."
Israeli investment institutions own 25% of Mellanox, and their opposition to renewing Waldman's terms as chairman and CEO could be an obstacle to their approval at the general shareholders meeting, because it requires the support of two thirds of the shareholders who have no personal interest in the decision. There are also questions about the employment terms of Waldman and other executives, including hefty bonuses.
The extent of the institutions' threat to Waldman can be seen in the two postponements of the general shareholders meeting. "We have not yet gathered all the votes for the vote," Waldman admits, "It's hard for me to know whether they will pass the resolution on the double position. This is the shareholders' decision, not mine."
Beyond the issue of principle Mellanox has with over-regulation in the Israeli market, there is the matter of Waldman's ego as the man who received the credit for a company that has boosted the turnover of the TASE (Mellanox has the sixth highest daily turnover).
The amendments to the Securities Law were made in response to problems of corporate governance at Israeli public companies and the approval of executive and owners' compensation, as well as cases in which shareholders' votes were simply not counted.
Mellanox has a market cap of $2.4 billion, 1,300 employees, and is an international high-tech star. It claims that, like a small-cap company on the TASE, it is now seen as an exploiter of the money of widows and orphans. It is hard not to see why Waldman threatens to quit the TASE, and not only because of the insult of the comparison.
In the summons for the general meeting, Mellanox says that Waldman should be reappointed to the dual positions of chairman and CEO because, "As CEO, Waldman has the detailed knowledge of the risks, opportunities, and challenges facing the company. The joint job ensures the flow of information between management and the board of directors, and clear responsibility for executing the company's strategy."
Entropy Consultants, which advises investment institutions to oppose Mellanox's decisions because of a lack of transparency and problems with its corporate governance, is at the center of the fight. "We want our shareholders to understand what the company is doing and to work with management. This is what happens in the US. In Israel, I think that Entropy is more important as far as they are concerned."
Mellanox's two biggest investors are foreign companies, FMR LLC (14%) and Oracle Corporation (Nasdaq: ORCL) (10%), followed by two Israeli companies - Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL) (8%) and Psagot Investment House Ltd. (6%).
Entropy realizes that the battle is greater than anything it has faced before. "The threat to delist the company from the TASE is itself improper corporate governance," it says, "This is a threat designed to achieve things in an improper way, harming corporate governance at the company, and harming the investments of minority shareholders."
Sources at Entropy said today that its position against Waldman's dual position and the company's executive compensation was known to Mellanox for years, but that only now has it had to face a real threat, because of the amendments to the Securities Law. Before Entropy's advice to the investment institutions is rejected, the problems with Mellanox's reporting to the capital market about its performance and quarterly results should be recalled. Maybe there is something to the demands for improving the company's conduct toward its investors.
Published by Globes [online], Israel business news - www.globes-online.com - on May 22, 2013
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