The campaign of activist investment fund Starboard to change things at Israeli semiconductor company Mellanox has gone up a gear. The US-based fund, which holds 10.7% of Mellanox, sent a letter to the company's shareholders yesterday presenting a demand to appoint no fewer than nine directors on its behalf to the Mellanox board. This would mean replacing all of Mellanox's currently serving directors. The letter was sent in adavance of Mellanox's upcoming shareholders' meeting.
The fund, which acquired a substantial stake in Mellanox about two months ago, becoming its largest single shareholder, had previously expressed dissatisfaction with the company's low operating profits and high expenditure. This is the first time, however, that it has raised concrete demands.
"We believe that Mellanox has the potential to become a best-in-class company. However, despite years of underperformance, Mellanox is now asking shareholders to trust that the Company will execute on its plan to achieve its targets for 2018 - targets that, even if achieved, would still position Mellanox at the bottom of the peer group in terms of profitability. We believe our continued involvement is critical to ensure that Mellanox has the appropriate oversight to help guide the Company through a transformation that would put it on the right path towards becoming a best-in-class semiconductor company, rather than a company merely hoping to achieve bottom-quartile performance," Starboard's letter states.
Starboard's candidates for the Mellanox board include Peter Feld, a managing member and Head of Research of Starboard Value LP, and Jeffrey Smith, also a managing member of the firm and its chief investment officer of Starboard Value LP. The fund also proposes an Israeli candidate, Efrat Makov, who was CFO of Alvarion and Aladdin.
Mellanox's current chairman is Irwin Federman. Its board includes Dov Baharav, formerly chairman of Israel Aerospace Industries and CEO of Amdocs, David Perlmutter, formerly with Intel, and company founder and CEO Eyal Waldman.
In response to the letter from Starboard, Mellanox issued a statement rejecting its demands. The statement says, among other things, "We maintain an open dialogue with our shareholders and welcome constructive input toward our shared goal of enhancing shareholder value. Members of our Board of Directors and senior management team have held numerous discussions and meetings with Starboard during the past several months, including an in-person meeting at our facilities in Israel just Monday of this week. Despite our ongoing discussions and open engagement, however, Starboard made no attempt to discuss their nominees with us before publicly nominating director candidates, which we were first made aware of through the media today. "The Mellanox Board is comprised of nine highly qualified and experienced directors, all of whom are committed to creating value for Mellanox shareholders. The Board believes that it brings a diverse range of valuable and relevant skills, expertise and perspectives to drive performance and provide effective oversight. Further, Mellanox is strongly committed to best-in-class corporate governance and is recognized by ISS governance analysis as possessing the best governance profile, including the highest board structure score, amongst its peers."
Published by Globes [online], Israel business news - www.globes-online.com - on January 18, 2018
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