The EZchip Semiconductor Ltd. (Nasdaq: EZCH; TASE:EZCH) shareholders meeting will convene one month from now to vote on the sale of the company to Mellanox Technologies Ltd. (Nasdaq:MLNX), but one shareholder has already announced its opposition to the deal: New Jersey-based Raging Capital Management, which own a 6.5% stake in EZchip.
The company, founded and managed by William Martin, calls itself a long-term investor that believes in EZchip's unique standing in the market. According to Raging Capital, following conversations about the Mellanox deal with EZchip's management and board of directors, and after reading the detailed summons to the shareholders meeting, it "does not believe that a proper and careful sale procedure has been carried out," and believes that a share price of $25.50 undervalues EZchip and the opportunities awaiting it.
Raging Capital said it would oppose the deal in its current form, even though according to the figures attached to its announcement, it would receive a respectable return on its investment in EZchip. Raging Capital acquired its EZchip shares at an aggregate cost of $31.5 million, and would receive $49.6 million in the proposed Mellanox deal, reflecting a 57% return. The average share price at which Raging Capital acquired its EZchip stake is $16.20, and $21 in the deals made in the past two months. At the same time, EZchip made short deals in the EZchip share at an exercise price of $20-25, but the volume of these deals was smaller.
No recommendations by consultant firms
As part of the deal, Mellanox, managed by president and CEO Eyal Waldman, will pay $811 million in cash ($620 million, discounting the company's cash balance) for EZchip, founded and managed by CEO Eli Fruchter. Both companies deal in communications equipment. The acquisition is subject to several conditions, including approval by a 75% majority of EZchip shareholders.
At this stage, no recommendations for investment institutions have been published by consultant companies, and it is possible that some of the institution have not yet decided how to vote. The prominent shareholders in EZchip include three Israeli investment institutions, each of which stands to receive tens of millions of dollars from the Mellanox deal: Harel Insurance Investments and Financial Services Ltd. (TASE: HARL) (a 6.3% stake), Psagot Investment House Ltd. (5.9%), and Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL) (5.6%).
Migdal said, "Migdal will make its decision by the time the shareholders meeting is held, and will announce it." No response from Harel or Psagot was available as of web posting.
Published by Globes [online], Israel business news - www.globes-online.com - on October 15, 2015
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