The long-awaited approval from the Chinese regulator for US graphics processing giant Nvidia's (Nasdaq: NVDA) acquisition of Mellanox Technologies Ltd. (Nasdaq:MLNX) was received last Thursday, after months of delays, enabling the $7.3 billion deal to be completed on April 27.
Mellanox founder and CEO Eyal Waldman told "Globes," that he had "mixed feelings" "We are very happy with the deal, which is very good for employees, the shareholders, and everyone connected to Mellanox but I'm a bit sad that this is in the end of a 21 year chapter of building an amazing company and amazing team. I'm sure that we will carry on building a large, good and healthy company within Nvidia.
That means you will stay with the company and be a part of Nvidia after the deal is completed?
"I'll continue for a certain period of time, perhaps shorter or perhaps longer. Nvidia CEO Jensen Huang and myself are working on this."
When the companies reported the deal more than a year ago, Huang expressed the hope that Waldman would continue to lead Mellanox, even after the deal was completed.
Mellanox develops and markets big data connectivity processors. Nvidia is paying $7.3 billion for the Israeli company including blocked shares, and capital remuneration options held by Mellanox's employees. The sale is being completed for $125 per share in cash. The deal was meant to close by the end of 2019 but was delayed by the need for the Chinese antitrust regulator to approve the acquisition.
Did you always believe that the deal would be approved or did you start to have doubts?
"I thought it would happen earlier and we thought it would happen but as time went by there were more concerns."
"They also have mixed feelings. They expect a new chapter for Mellanox within Nvidia with many opportunities and much more resources, and on the other hand hoping that the love, amazing family-feeling will also remain from within Nvidia.
Waldman himself has a 3.5% stake in Mellanox worth $238 million while other major shareholders include Fidelity (4.5%), Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS) (3.7%), and MFS and Alpine Associates (3.6% each). Waldman is also entitled to a 'golden parachute' of $31.6 million, if he decides to leave.
Will Mellanox keep its own character or get swallowed up by Nvidia?
"I think that Mellanox can certainly keep its character because of the geographic distance, the character and areas of activity of Mellanox and Nvidia may touch on each other but are somewhat different. Nvidia is a graphics laboratory and similar things and Mellanox is connectivity."
Waldman adds, "These marvelous opportunities, our very good results, we are growing by tens of percentage points more than we expected, and I believe this will continue from within Nvidia."
Asked what the new opportunities for Mellanox are, Waldman responded that there are synergies in the companies in the car market, where Mellanox is already operating but will now be much more deeply involved as well as the artificial intelligence market. "We are very strong there and together with Nvidia we will take most of the market."
Another opportunity that he mentions is the high-performance computer (HPC) market, "The synergy creates a company with a great deal of technology and power to influence the biggest sectors in the coming decades," he stresses.
After Mellanox's very strong results in 2019, there is a feeling that if you had sold later, you could have got more?
"I think that due to the results if we had stayed independent, the value of the company would have gone higher, even with the (coronavirus) situation."
Do you feel you have missed out
No. You have to be realistic. The deal was the right move.
How is the coronavirus crisis effecting you in terms of the supply chain and demand from customers?
"We don't see a slowdown in terms of customers, on the contrary, we see very strong growth. On the topic of supply, we keep getting caught up in issues that have to be dealt with, so at the beginning we switched production from China to India and to Taiwan, and when India went into lockdown we moved it to Israel, and then we moved some of it back to China. We were prepared for disasters and we are still prepared. So now we see Mexico closed down and we are working from a ready-made plan. We haven't delayed one single consignment to customers. Not in the first quarter and not in the second quarter."
Mellanox has been helping out in the coronavirus crisis. Waldman said, "We helped fly home some of the Israelis who were stranded abroad, we have donated ventilators to hospitals, and we donated over NIS 1.5 million for medical equipment and took care of bringing medical equipment from around the world because we are deployed worldwide. We flew medical equipment worth nearly $100 million to Israel. We have taken part in the efforts and contributed a great deal in the war against the coronavirus. Once the state was set fair and began to get working, we moved on to helping our own businesses. We are still involved but at the start we helped a lot."
How is Mellanox working on a day-to-day basis during the crisis?
"Until a week ago we had 10% of employees in our offices and today we are up to 15%-20%. We're managing and working well from home. We were ready in advance because we have 3,200 employees worldwide and work is carrying on well."
He continues, "We must build an exit from the crisis, and here too we can adopt many models from businesses. The political organizations are not being assisted enough by professional bodies and you can see this in a lot of decisions every day. We have here very good management resources."
In the field of financial management, Waldman fears that money is likely to be handed out by political groups to their electorate rather than in a professional way.
Mellanox listed on Nasdaq in 2007 with a market cap of $510 million. In 2017, the company got entangled in a struggle with activist minority shareholder Starboard, who wanted to shake up the board of directors, despite opposition from Mellanox. The companies compromised and then in 2018 a bidding war to buy Mellanox began between Intel and Nvidia, which culminated in an announcement in March 2019 that Nvidia was buying the company.
Published by Globes, Israel business news - www.globes-online.com - on April 19, 2020
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