At Mellanox's press conference in Tel Aviv yesterday, company founder, president, and CEO Eyal Waldman commented on the acquisition of the company by US chip corporation Nvidia for $6.9 billion.
Q: Are you staying with the company?
Waldman: "I don't know about my future yet. We haven't yet decided."
How much will the employees get?
"A great deal of money. I estimate that the employees own 7% of the company. They think that in order to retain the employees, Nvidia will go on giving blocked shares to employees. It's not an acquisition of buildings or products, but of people, and they are committed to taking care of the people. The people at Mellanox will benefit from the merger both economically and technologically."
Was there never any chance of surviving as an independent company at a time of mergers and acquisitions?
"Mellanox could have continued growing as an independent company. Under the circumstances, we decided that this was the right thing to do. It has nothing to do with Starboard. Mellanox is doing the right thing for its shareholders, customers, and employees."
The Israeli public benefits less from the exit, because Mellanox was delisted from the Tel Aviv Stock Exchange (TASE)
"The Israeli public owns over 15% of the company. A lot of investment institutions hold shares in Mellanox, and there are people who personally own shares.
"You don't have to be on the TASE for the Israeli institutions to invest. The plan is not to cut staff; on the contrary, I think that we'll grow in order to accelerate plans. We're 7,000 miles from the headquarters, and I think that Jensen's (Nvidia CEO Jensen Huang) plan is to leave the company working the way it does now."
Why did you choose Nvidia?
"It's an excellent company. The combination of the return for the shareholders and what is most correct technologically converged in the same company."
Was Intel in the game?
"We can't talk about this. The plans for the employees in Israel and the Palestinian Authority are going forward as usual. We have dozens of employees in the Gaza Strip, Rawabi, Nablus, and Hebron, and their contribution to us is good and significant. In short, Mellanox's plans are continuing as part of Nvidia."
What led you to make the change and sell the company?
"As a public company, it's impossible to ignore the shareholders, to whom you owe first loyalty. After 20 years, this isn't something that can go on forever."
Is this a happy day for you?
"I have mixed feelings. I'm both happy and sad. All in all, this is bringing a lot of technology to Israel. The capabilities that a company like Nvidia, a technological leader, can bring to Israel are amazing for Mellanox's employees. The message for Mellanox's employees, the entire country, and companies working with us in Israel is very positive."
What are you hearing from the employees now?
"I haven't had much time to hear from them. Our message to the employees is that we've worked as a group for many years, and we'll continue working as a group. I think that not much, if anything, will change for most of the employees. I assume that most of us will do our best to make this merger a success. When you get to know the company, you see a lot of positive things about Nvidia and Jensen."
Waldman began the press conference by saying, "Nvidia is acquiring Mellanox for $6.9 billion at $125 per share. The two companies have been working together for many years. They have been partners in the construction of a great many super-computers and artificial intelligence computers all over the world." Waldman added, "Jensen and I have known each other for years, and have become friends. I found a partner with culture and character similar to that of Mellanox. Jensen founded Nvidia, and the culture there is very healthy and right. The treatment of employees is clean and simple. It's a very technological company based on success and a technological advantage that has acquired market shares. Nvidia's power will bring Mellanox additional capabilities. In general, the merger is very positive. The merger is economically profitable from the first day, because Mellanox is very profitable in its own right. We'll add to Nvidia's gross profit."
Waldman praised the acquiring company's organizational culture, saying, "Nvidia has never made such a large acquisition before. The last one was 16 years ago, and most of the senior executives of the acquired company are still at Nvidia. That says a lot about how they share. Mellanox feels that it is joining a very good group with a culture of success and positive accomplishment. The technologies will build the special architecture of computing. Together, we'll produce far more effective computer, connectivity, and storage systems. The synergy of the two companies in technology and what they bring to customers is one plus one equals five. There's a lot of overlap between our customers and those of Nvidia. It will multiply both our sales and those of Nvidia. The deal hasn't been finally closed yet, but Mellanox will remain a semi-independent entity that will work from Israel. We'll continue all of Mellanox's product lines, and most of the people will stay in the same position, in the same office, with the same teams and managers, and will do it with more resources."
Commenting on the negotiating process with Nvidia, Waldman said, "We had a pretty interesting evening. Two boards of directors signed the deal in the middle of the night, a press release was issued, and we'll go on to get the shareholders' approval of the merger. It will take a few months, and then there's the regulations. We don't expect regulatory problems in the US, China, Taiwan, or in several European countries. We believe that closing the deal will take between five months to less than a year. We'll try to bring more activities to Israel. Production will stay here, and we'll try to bring more of Nvidia's production to Israel."
Waldman personally will be one of the big beneficiaries of the deal, because he holds 3.4% of Mellanox's shares, worth $228 million. Starboard will also profit. It holds 5.8% of the shares, and will receive $393 million on the deal. Starboard bought its shares at $44-51 per share and sold some of them in recent months at $85-101 per share, giving it a handsome profit. Another prominent shareholder is another US technology leader, Oracle, which holds Mellanox shares worth $276 million. Oracle first invested in Mellanox in late 2010, when it bought a 10% stake at around $20 per share, but took advantage of the surge in Mellanox's share a year ago to sell shares for $104 million. Only two Israeli concerns have significant holdings in Mellanox: Clal Insurance Enterprises Holdings (TASE: CLIS) owns a 3.5% stake worth $236 million and hedge fund Ion Asset Management has a 2.3% holding worth $157 million.
Israeli companies formerly had larger holdings in Mellanox, because it was listed on the TASE and was included in the leading TASE indices. Waldman shocked the market in 2013 by delisting the share from the TASE, however, at a time when the company's market cap was only $2.2 billion.
Published by Globes, Israel business news - en.globes.co.il - on March 12, 2019
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