Entropy backs Mellanox-EZchip deal
The Israeli consultancy's recommendation to shareholders to approve the deal joins that of ISS.
The Mellanox-EZchip deal has received further backing, with a positive recommendation from Entropy, the Israeli consultant to institutional investors. Entropy recommends EZchip shareholders to approve the merger with Mellanox at the shareholders' meeting on November 12. A special majority of 75% is required to approve the deal.
Entropy's recommendation follows a similar one from US consultant ISS.
Mellanox, headed by Eyal Waldman, announced its intention of buying EZchip, headed by Eli Fruchter, in an $811 million deal. Both companies are active in communications equipment.
Entropy notes that the negotiations over the deal began when EZchip announced in May this year that it was liable to lose a main customer, Cisco, which accounted for 35% of its sales, because Cisco had decided to develop the chip for its next generation of products in-house. EZchip consequently lost a quarter of its market cap, with its share price falling to $15 (which compares with $25.5 in the sale to Mellanox).
According to Entropy, the rationale behind the deal is the existence of synergetic customers in the two companies' fields of activity. It adds that EZchip can cancel the deal if it receives a higher offer from another company, subject to payment of a $28.4 million penalty.
Another fact that Entropy stresses is that EZchip's senior managers have no "golden parachute" clause in their employment agreements, and so there is no fear that the company's CEO (who also holds 2% of its shares) or other managers acted out of ulterior motives, out of line with the interests of the other shareholders.
"We believe that the identity of interests with the company CEO, who is also the largest private shareholder, and also the fact that the deal was made at a price higher than the market price at the time of the offer, and the lack of any higher offer so far from any competitor, indicate that the price offered by Mellanox is good for EZchip's shareholders in general," Entropy writes in its opinion.
Entropy recommends against the appointment of the two directors proposed by minority EZchip shareholder Raging Capital, which opposes the Mellanox deal. Entropy believes that Raging Capital's candidates have appropriate education and experience, but says that "these are candidates for the board of directors on behalf of a hedge fund that has stated its opposition to the merger deal that we recommend supporting, and, in addition, according to the company's reports, the fund has a position that enables it to benefit from a fall in the share price as well, which creates a conflict with the interests of the 'pure' shareholders in the company."
Published by Globes [online], Israel business news - www.globes-online.com - on November 2, 2015
http://www.globes.co.il/en/article-entropy-backs-mellanox-ezchip-deal-1001078070 |
