The 30 days given to EZchip Semiconductor Ltd. (Nasdaq: EZCH; TASE:EZCH) to find a buyer expire today, and as of now, it appears that no party will make a better bid than the one by Mellanox Technologies Ltd. (Nasdaq:MLNX). Mellanox agreed to acquire EZchip for $811 million (at $25.50 a share), but in November, just before the EZchip shareholders meeting convened to approve the deal, both companies realized that they would have difficulty obtaining the 75% shareholders majority to approve the deal. The reason is opposition from EZchip minority shareholder Raging Capital, supported by a negative opinion of the deal published by Glass, Lewis, & Co., a consultant firm for investment institutions.
The shareholders meeting was postponed, and EZchip was given 30 days to try to find a different buyer, with Mellanox having the opportunity to match any other prospective bid. If no other buyer emerges, EZchip will convene a shareholders meeting on January 19 to vote on the original deal.
Yesterday, Raging Capital published another open letter about the prospective deal. The fund, which holds 7.2% of EZchip's share capital, and which opposed the deal with Mellanox, argued that the deal undervalues EZchip, and that the process itself was faulty. "Despite EZchip's last minute maneuvers, the postponed merger with Mellanox and the establishment of an additional Go Shop provision was a victory for EZchip shareholders. the letter stated.
"Unfortunately, instead of making EZchip as attractive as possible to prospective bidders, EZchip's CEO Eli Fruchter has instead used this time trying to convince shareholders who voted against the Mellanox transaction that the Company's prospects aren't as good as he once said they were," the letter continued. Raging Capital asserts that this could potentially harm the shareholders.
Market believes that the deal will go through
"In fact, it has come to our attention that Mr. Fruchter has recently been posting comments on a private subscription-based message board which paint a negative picture of the business. In our opinion, Mr. Fruchter's imprudent comments are intentionally sabotaging the Go Shop process. Not only are Mr. Fruchter's comments downplaying the Company's future business prospects in a manner completely inappropriate for a public-company CEO in the midst of what should be a competitive sale process, but they reveal how his motives may be focused only on closing a transaction with his neighbors at Mellanox (both companies are based in Yokneam, S.H.-V.) and misaligned with shareholders who seek to maximize the value of their shares," Raging Capital writes. The consultant firm calls on the company to be transparent to its shareholders, and to refrain from statements on private message boards. "In the event that the Company fails to obtain a superior offer via the Go Shop process, Raging Capital intends to once again vote against the proposed sale to Mellanox," the letter concludes.
Ezchip develops chips for communications network routers. Mellanox, managed by CEO Eyal Waldman, develops and markets communications equipment for high-speed data transmission on organizational networks. Mellanox's market cap is $1.9 billion, and Ezchip's market cap is $734 million. The EZchip share price is $24.40, close to Mellanox's offer, which is likely to provide an indication that the market believes that the deal will eventually go through.
Published by Globes [online], Israel business news - www.globes-online.com - on December 16, 2015
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