ISS supports Nvidia's acquisition of Mellanox

Eyal Waldman and Jensen Huang Photo: Kadia Levy

The US consultancy firm is also recommending an increase in compensation for Mellanox founder and CEO Eyal Waldman.

Next Thursday, Mellanox Technologies Ltd. (Nasdaq:MLNX) shareholders will vote on the Israeli bid data connect company's acquisition by Nvidia for $7.36 billion. In an opinion obtained by "Globes," Institutional Shareholder Services (ISS) a large US consultancy firm for investment institutions, has recommended that its clients support the deal.

ISS says that the procedure conducted by Mellanox for selling the company was comprehensive, culminating in three concrete cash offers, of which Nvidia's bid was highest - $125 per Mellanox share, including a premium on the market price, and also on the highest price ever reached by the share. "MLNX shares currently trade at an 11.1% discount to the offer price; however, this discount appears to reflect potential regulatory delays, rather than financing uncertainty, given ongoing US and China trade disputes," ISS's economists wrote. They mentioned that Nvidia is committed to paying Mellanox $350 million if the deal is called off because of failure to obtain regulatory approval.

In its opinion, ISS writes that investors' response to the report of the deal was positive, and that the share leaped 7.8% on the same day, compared with a 2.4% rise in the relevant indices. ISS's economists describe the procedure conducted for selling Mellanox, as reported by the company, which included discussions with a number of companies and increasing the share price for the proposed deal. They conclude that Nvidia's offer represents a substantial premium on the share's "unaffected price" (the price before the October 2018 report by CNBC that Mellanox was likely to be sold) and a 4% premium on the share's all-time high price. "In consideration of these factors, including the certainty of value inherent in cash consideration, a vote FOR this transaction is warranted," ISS writes.

ISS also recommends approval of another item to be voted on - the "golden parachute" for Mellanox founder and CEO Eyal Waldman and other Mellanox executives, meaning the compensation that they will receive after leaving the company, following the change in the company's ownership. ISS explains, "Support for the golden parachute proposal is warranted… The proposal to amend the executive's severance benefits (Item 6), which is an enhancement, is reasonable when compared to US market practices." Waldman's golden parachute will be $31.6 million: $3.4 million in cash and $28.1 million in capital compensation, including the value of the blocked shares he possesses. The golden parachute of the other Mellanox executive will total an aggregate $15.6 million.

The amount that Waldman will receive is contingent on approval of another item in another vote, on which ISS also recommends a positive vote. If this item is passed, Waldman will receive double his annual base pay and his annual target bonus (in addition to speeding up his existing capital compensation). If this item fails to pass, Waldman will receive 120% of his annual salary, plus an amount equal to half his annual salary. ISS writes, "Although enhancements to change in control benefits are normally cause for concern, there are mitigating factors in this case. The prior arrangements for the Israel-based executive were significantly below market standard in the US. Also, this proposal does not result in any excessive payouts, and both cash and equity severance are double trigger."

Another matter to be voted on at the meeting that ISS recommends a positive vote is increasing Waldman's annual salary from $610,000 to $650,000, starting in April 2019. Under Israeli law, this item, which will influence his compensation in the golden parachute, requires approval by the shareholders. ISS states, "…the proposed amount is relatively modest and is consistent with director compensation terms authorized under the company' current forward-looking compensation policy."

Mellanox develops and markets communications equipment for high-speed data transmission. Nvidia is acquiring the company for $125 in cash for each Mellanox share, amounting to a total of $6.9 billion and $7.36 billion including all of the blocked shares, warrants, and performance-based capital compensation possessed by the employees. Waldman, who founded Mellanox in 1999, holds 3.3% of its share capital with a value of $228 million in the deal. The largest shareholders in Mellanox are Oracle with 4% of the shares and Clal Insurance with 3.5%. Investment fund Starboard, which was the largest shareholder in Mellanox and led a proxy struggle against the company's board of directors last year, sold its shares at a considerable profit shortly after learning about Nvidia's acquisition of Mellanox.

Published by Globes, Israel business news - en.globes.co.il - on June 13, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Eyal Waldman and Jensen Huang Photo: Kadia Levy
Eyal Waldman and Jensen Huang Photo: Kadia Levy
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