Mellanox share price remains well below Nvidia offer

Eyal Waldman and Jensen Huang  photo: Niv Cantor
Eyal Waldman and Jensen Huang photo: Niv Cantor

With the deal scheduled to be completed by the end of the year, Mellanox share price is 6.5% below what Nvidia will pay. What snags could torpedo the deal?

More than a week after US tech giant Nvidia announced that it is buying big data connectivity chipmaker Mellanox Technologies Ltd. (Nasdaq:MLNX) for $6.9 billion or $125 per share, the Israeli company is still trading at only $118 per share, with a market cap of $6.436 billion.

In other words, with the acquisition scheduled to close by the end of 2019, it would be possible to make a 6.5% profit over the next nine months, or 8.35% on an annualized basis. Not a bad return in this era of uncertainty and low interest rates.

Some deals do hit snags and fail to be completed, thus the spread between the current share price and the price Nividia is offering. So what is the risk of the deal not being completed?

Both companies want the deal and shareholders are highly unlikely to reject the handsome premium they are getting. The US and European regulators should pose no problem with few of the antitrust issues involved had a bigger player like Intel tried to buy Mellanox.

The main fly in the ointment is the Chinese regulator, who has been causing problems due to the trade war between the US and China. Last year at the height of the trade tensions, writes "The Meticulous Investor" in its recommendation to go long on the Mellanox deal spread and buy, the Chinese regulator nixed Qualcomm's acquisition of NXP Semiconductor.

However, China is being more conciliatory now, as demonstrated by its recent approval of US company KLA-Tencor's $3.4 billion acquisition of Israeli electronics company Orbotech, after months of foot-dragging.

Nevertheless, the diplomatic brinkmanship between the US and China could always descend into open trade warfare, even if that is not what both sides especially want. Maybe this was the reason that activist investor Starboard already sold its entire holding in Mellanox last week at $118 per share, preferring not to take any risks. There are also a plethora of unforeseen circumstances that could arise that add to the risk.

Of course, even in a worst case scenario, if the deal were to break down, Mellanox, still led by its founder and CEO Eyal Waldman, would remain a highly coveted company with a bright technological future. That 6.5% profit might be lost in the short term but in the medium to long term, the shares could potentially yield even larger returns.

Published by Globes, Israel business news - en.globes.co.il - on March 21, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Eyal Waldman and Jensen Huang  photo: Niv Cantor
Eyal Waldman and Jensen Huang photo: Niv Cantor
Gabi Seroussi illustration: Gil Gibli Board chooses Seroussi as IAI chair as Erdan freezes candidacy

Israel Aerospace Industries board chose Gabi Seroussi as chair even though he did not to go through the preliminary process of the Government Companies Authority appointments review committee.

Bavli Park penthouse credit: Eyal Tagar Tel Aviv Park Bavli penthouse sells for NIS 43m

A 44th floor penthouse in one of the two towers in businessman Yitzhak Tshuva's Park Bavli project has been bought by an Israeli businessperson.

El Al aircraft  credit: Yoav Yaari El Al pilots receive nearly NIS 250,000 bonus each

Thanks to the agreements signed with the unions in 2018, El Al's employees as well as senior management share in last year's success.

Pentera CEO Amitai Ratzon credit: Eyal Izhar Israeli security validation co Pentera raises $60m

Pentera's platform enables security teams to analyze complete attack paths, identify root causes, and prioritize remediation for effective risk reduction.

Tel Aviv credit: Shutterstock Supply of unsold new homes hits record

Israel's real estate market is sliding into recession with 78,000 unsold new apartments in January, the Central Bureau of Statistics reports.

D&B chairman Doron Cohen and Meitar partner Dan Geva Meitar reclaims title of Israel's biggest law firm

Meitar has first place with 537 lawyers, followed by Herzog Fox Neeman with 512 lawyers, according to the latest Dun's 100 rankings.

First International Bank of Israel CEO Eli Cohen  credit: Eyal Toueg First Int'l posts top return on equity

First International Bank of Israel's return on equity in 2024 was 19%, the highest among Israel's banks.

Dina Ben Tal Ganancia  credit: Guy Kushi & Yariv Fein El Al almost quintuples profit

The airline posted a net profit of $545 million for 2024, 4.7 times the profit in 2023, and an all-time high.

Gev Hadari credit: Nati Hortig Sompo Israel appoints Gev Hadari as cybersecurity head

Hadari's expertise spans penetration testing, including Red Team operations, web applications, mobile applications, OT/IOT products, and both external and internal assessments.

Attack drones credit: Shutterstock IDF issues tender for 5,000 Israeli-made attack drones

Critics of the tender say the number being procured is insufficient and thewre are security concerns about Chinese components.

Real estate agencies illustration: Tali Bogdanovsky credit: Eyal Izhar Too many agents and too few housing deals in Tel Aviv

There were 2,270 second-hand homes sold in Tel Aviv last year, while the city has 2,566 registered realtors, "Globes" finds.

AI founders Amnon Shashua, Yoav Shaham and Ori Goshen credit: Omer Hacohen AI21 launches Maestro planning and orchestration system

AI21 says Maestro improves the accuracy of systems like GPT-4o and Claude Sonnet 3.5 by up to 50% on complex tasks.

Cybereason offices credit: Micah Lubaton Cybereason raises $120m after CEO steps down

Only last week, after a dispute with investors, outgoing CEO Eric Gan said the Israeli-US cybersecurity company was on the verge of bankruptcy.

Matrix IT CEO Moti Gutman  credit: Idan Gross Matrix CEO Gutman among highest paid execs at TASE cos

Moti Gutman's total compensation cost in 2024 was NIS 23.7 million. Matrix posted 14.4% growth in operating profit.

Discount Bank CEO Avi Levi  credit: Israel Hadari Discount Bank posts NIS 4.3b profit for 2024

The profit is 3% higher than for the previous year. The bank will distribute a cash dividend of 30% of profits, and will also buy back shares.

Matrix Hq in Kfar Saba credit: Matrix Matrix to buy Magic in major Israeli IT merger

Magic will become wholly owned by Matrix in a triangular reverse merger. The combined company is expected to have a market cap of NIS 7.7 billion.

Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018