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Raging Capital Aware of Other Suitors for EZCH
Raging Capital Urges Shareholders to Vote AGAINST Mellanox Merger and FOR Election of Ken Traub and Paul McWilliams
November 10, 2015
Exclusive Negotiations with Mellanox Did Not Lead to Full Value for Shareholders
Believes EZchip Is Worth Much More Than $25.50 -- Either By Staying an Independent Company or in a Full, Fair and Competitive Sale Process
PR Newswire Raging Capital Management, LLC
ROCKY HILL, N.J., Nov. 9, 2015 /PRNewswire/ -- Raging Capital Management, LLC ("Raging Capital"), the largest shareholder of EZchip Semiconductor Ltd. (EZCH) ("EZchip"), owning approximately 6.7% of the ordinary shares outstanding, issued a letter to EZchip shareholders today urging them to vote against the merger with Mellanox Technologies, Ltd. (MLNX) ("Mellanox"), and vote for the election of Raging Capital's two highly qualified director nominees, Ken Traub and Paul McWilliams.
The full text of the letter follows:
November 9, 2015
Dear Fellow Shareholders:
The November 12, 2015 vote on the proposed EZchip-Mellanox merger is fast approaching. It is extremely important that you protect your investment by voting the GOLD card AGAINST the Merger Agreement and FOR the election of Raging Capital's nominees Ken Traub and Paul McWilliams to the Company's Board of Directors.
Voting instructions can be found at www.EZCH-value.com
As EZchip's single largest shareholder, we strongly believe that now is NOT the right time to sell EZchip. We are confident in EZchip's future value potential as a standalone business and believe the Company is positioned to be one of the most dynamic and exciting growth opportunities in the entire semiconductor and networking technology space! As a result, we believe there could be a much better opportunity to sell the Company for significantly more money at a later date.
As we have previously stated (along with Glass Lewis - one of the leading proxy advisory firms), the EZchip board of directors failed to run a comprehensive, fair and competitive sales process. Instead, the Company negotiated only with its friends at Mellanox, which is based in the same small Israeli town of Yokneam as EZchip.
In its defense of the ill-advised merger agreement with Mellanox, EZchip claims that "no interest has been indicated by any potential suitor to date." We know this for a fact to be untrue. We are aware of other suitors who are interested in EZchip and who have contacted EZchip and/or its banker in order to express their interest. Unfortunately, EZchip did not enable anyone but Mellanox to get in the door.
It is important to understand that EZchip's campaign to cram through this ill-advised sale to Mellanox demonstrates that their interests may not be aligned with shareholders. We are concerned that EZchip CEO Eli Fruchter may have been planning to retire – stating publicly after the deal was announced: "I'm sixty this year, and I think that that's enough" – but his shares are not as liquid as other shareholders, and the only way he can become liquid on his entire stake in EZchip is to sell the Company for cash. But rather than waiting for the right time to sell when EZchip's value is more apparent, or conduct a full, fair and competitive sale process – he negotiated only with Mellanox based on a long-standing understanding between Mr. Fruchter and Mellanox CEO Eyal Waldman that they would bring the companies together.
Considering the apparent lack of interest in seeking higher value from alternative suitors, shareholder value was compromised. As a result of the bad deal that was struck in a shot-gun marriage, and our own challenge to the proposed merger, EZchip has resorted to publicly downplaying its own future prospects in stark contradiction to its own prior statements and the facts as we know them. Do not be fooled by EZchip's latest tactic to downplay its promising future – we believe this sudden misdirection is solely intended to push through the merger vote.
Here are the main problems we have with the proposed Mellanox merger:
EZchip only negotiated with Mellanox. Despite a robust M&A environment, inexpensive and plentiful financing optionsand numerous potential bidders for EZchip, the Company's board of directors only negotiated with one potential buyer - Mellanox, and failed to run a rigorous sale process or create a competitive bidding environment. We know of suitors that are interested in EZchip, but EZchip never gave them a chance.
The Board failed to include a standard "Go-Shop" provision and instead agreed to an expensive break-up fee, severely restricting the opportunity for a competitive bidding process. The merger agreement does not include a "Go-Shop" provision, which would be standard in an abbreviated sale process like this one. Furthermore, the break-up fee is well above industry norms at 4.9% of the deal's enterprise value.
$25.50 per share is a very cheap buyout price. $25.50 per share implies EZchip will be sold, net of cash, for just over 10x 2016 consensus earnings estimates. This is clearly a low valuation for a company with EZchip's growth momentum, operating leverage and technology strength. |
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