Seven international companies made inquiries about the acquisition of Israeli big data connectivity company Mellanox Technologies Ltd. (Nasdaq:MLNX) in recent months, and four of them conducted due diligence and made actual bids. The eventual winning bid was $6.9 billion by Nvidia. Mellanox yesterday published a report ahead of its shareholders' meeting that will convene to approve the deal describing the course of events leading to the deal that was signed.
"It was a very competitive process. The bankers said that they had never seen one like it. Eyal is a very tough negotiator. I had to call him every day to tell him that I love him," Nvidia CEO Jensen Huang said at a press conference a month ago, at which he described the negotiations with Mellanox founder and CEO Eyal Waldman. Mellanox's report confirms his description. The candidates to acquire Mellanox over the past year included Intel, Microsoft, and Xilinx.
The report indicates that the first company to contact Mellanox (described in the report as "party A") did so a year ago for the purpose of strategic cooperation. In August-September 2018, A's CEO mentioned the possibility of acquiring Mellanox, and a price of $102 per share, a 32.6% premium on the market price at the time, was mentioned. Waldman answered that the offer was lower than the $109.50 average target share price given by analysts, but that if an official bid was made, he would present it to the board of directors. The official bid duly arrived the same day.
JP Morgan, Mellanox's advisor, presented a number of other companies that might be interested in the acquisition, and the Mellanox board of director notified A's CEO that if the bid was substantially improved, the process could begin. The board of directors decided to contact two other potential buyers: Nvidia and B, which were selected because the board of directors believed that they would be interested in Mellanox, and could make better bids than A, due to the synergy and antitrust issues.
The first talks between Waldman and Huang took place in October, and they met a number of times in the following days. At the same time, talks took place with company B, while Mellanox's board of directors, in consultation with the bank, decided to contact another company, C, in the semiconductor industry, which gave up the idea shortly afterwards.
CNBC reported on October 25 that Mellanox was a candidate for acquisition, and Mellanox's share price spurted in response. Two companies, D and E, subsequently contacted Mellanox with inquiries about an acquisition.
In the following weeks, Nvidia, A, B, and D conducted due diligence for Mellanox. A raised its bid by $1 per share to $103, but was told that the bid undervalued Mellanox. Mellanox's share price continued to climb because people believed that the company would be acquired.
Acquisition offers arrived thick and fast in the ensuing days. On November 16, D submitted an official bid at $102 per share. Two days later, B made a $107 non-binding bid. The same day, A improved its bid to $104.50. Mellanox's board of director notified all of the bidders that they had to raise their bids, and told Nvidia that it had to submit a bid in order to remain part of the process. In response, Nvidia bid to acquire Mellanox at $105 per share.
The talks continued in the following months. A bid $106.60 per share in January, B offered $110, and D bid $104.50: $90 in cash and the rest in shares. At that stage, Nvidia bid $107 per share.
And then there were two
In early February, Mellanox's board of directors decided that final bids should be submitted by February 26. Another company, F, entered the picture for three days, but decided that it was not interested in the acquisition. In late February, Nvidia bid $115 per share, A bid $109.75, and B also bid $115. The board of directors decide to ask Nvidia and B for final bids, and notified A that its bid was the lowest. In response, A also bid $115, but retracted the bid the next day.
Waldman notified Huang and B's CEO that they had to improve their bids. In early March, B bid $117, while Nvidia repeated its $115 bid. Waldman contacted B and "encouraged it to improve its offer. At the same time, Waldman went back to A, which reentered the picture with a $121 bid - the same as B's final bid. B raised its bid to $122.50, and Waldman went back to Huang and encouraged him to offer more than $120, saying that the company would enter exclusive negotiations with the highest bidder. Huang made a final bid of $125 per share, 23% higher than Nvidia's initial bid, in response, which would expire the same day if exclusive negotiations were not begun. Mellanox's board of directors agreed, and negotiations were broken off with A and B. Three days later, the acquisition agreement with Mellanox was signed.
Published by Globes, Israel business news - en.globes.co.il - on April 23, 2019
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