Ahead of the EZchip Semiconductor Ltd. (Nasdaq: EZCH; TASE:EZCH) shareholders' meeting convening today to approve the sale of the company to Mellanox Technologies Ltd. (Nasdaq:MLNX), it appears that the two companies have attained the majority needed to approve the deal, sources inform "Globes." A majority of 75% of the shareholders at the meeting is required, whether physically present or voting by proxy, and more than 85% support the deal. At the preceding meeting convened in November 2015, the matter was taken off the agenda at the last minute, after EZchip and Mellanox realized that they would not obtain the required majority.
Founded and managed by CEO Eyal Waldman, Mellanox develops and markets organizational data communications equipment. EZchip, founded and managed by CEO Eli Fruchter, develops and markets chips for network communications routers. The two companies are located close to each other in Yokneam, and their respective founder-CEOs have said in the past that the deal was fashioned when they ate together at restaurants in the area. The price of the acquisition is $811 million, or $610 million after deducting EZchip's cash reserves. The EZchip share price for the deal is $25.50.
The deal was initially strongly opposed by EZchip minority shareholder Raging Capital, a US investment fund, which complained about both the share price for the deal and the way EZchip's board of directors conducted the sale. Two consultant firms for investment institutions, ISS from the US and Entropy from Israel, gave positive opinions about the deal. US consultant firm Glass Lewis, on the other hand, recommended that its clients vote against the deal.
When the vote on the deal was postponed in November, Mellanox gave EZchip 30 days to search for a different potential buyer, while retaining the right to match any new offer. This was a calculated risk; Mellanox showed itself confident in its ability to acquire EZchip, and felt that it could wait. Indeed, even though Barclays Bank, which advised EZchip in the deal, contacted 31 potential buyers for the company, none of these companies submitted a bid to acquire EZchip.
As a result, Raging Capital decided to withdraw its opposition to selling the company. The fund announced two weeks ago that it would support the deal, even though it still believed that EZchip deserved a higher price, because no other buyer had been found. Raging Capital then immediately sold a large proportion of its holdings in EZchip at a handsome profit, dropping from an 8% holding to 2.5% (it may have since sold its remaining holding, but it is no longer considered a party at interest, and is therefore no longer required to report any such sale).
Glass Lewis remains steadfast in its opposition to the deal. Its revised opinion states that the fact that there were no other offers provides the EZchip shareholders with some confirmation that the Mellanox offer is the best one currently available, but it does not alleviate concern that the price offered in the deal is not adequate in comparison with EZchip's value as an independent company.
The consultants for EZchip in the deal were Barclays Bank, the Naschitz Brandes Amir law firm, and Carter Ledyard & Milburn, and Mellanox's advisers were JP Morgan, Herzog Fox & Neeman, and Lathan & Watkins.
The Mellanox-EZchip deal is taking place in a lively mergers and acquisitions market in the chip industry. The deal will not make Mellanox one of the industry's leading companies, but it enlarges its potential market and the variety of solutions it can offer its customers. Credit Suisse estimated that the EZchip acquisition would increase Mellanox's potential market from $2 billion to over $14 billion by 2017.
Published by Globes [online], Israel business news - www.globes-online.com - on January 19, 2016
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