(Corrects headline to clarify that Mellanox and EZChip have amended their deal to allow EZChip to seek other buyers, not vice versa)
By Liana B. Baker
Nov 15 (Reuters) - Israeli semiconductor designers Mellanox Technologies Ltd and EZchip Semiconductor Ltd will agree as early as Monday to amend their deal to allow EZchip to seek other suitors, according to people familiar with the matter.
The inclusion of this “go-shop” provision in the merger agreement seeks to address concerns from activist investor Raging Capital Management. The hedge fund owns 6.5 percent of EZchip and is pushing for a higher price than the $25.50 per share in cash Mellanox offered in September.
In their announcement, the companies also plan to eliminate the breakup fee EZchip would have to pay as part of a deal with another party, the people said, asking not to be identified ahead of any official statement.
Mellanox declined to comment, while EZchip could not immediately be reached for comment.
A global consolidation wave in the semiconductor industry has seen mergers and acquisitions take place at a breathless pace, attracting the attention of activist investors. Elliott Management, for example, another hedge fund, has been fighting against Dialog Semiconductor Plc’s acquisition of Atmel Corp.
Raging Capital has argued that EZchip did not pursue a “robust and rigorous” sales process, while EZchip has said that its financial adviser Barclays Plc approached six buyers, all of whom were not interested.
Mellanox, which supplies products that enable databases, servers and computers to connect with each other, announced in September it would acquire EZchip in an $811 million all-cash deal to gain the capability to manufacture Ethernet network processors. Both Israel-based companies’ shares trade on the NASDAQ exchange.
Raging Capital launched a proxy fight against the company but failed to install two of its board nominees to EZchip’s board at its latest annual meeting. It has however been successful in challenging the merger. EZchip needs to secure support from 75 percent of its shareholders for the deal to go through, a high threshold.
On Thursday, Mellanox reaffirmed its offer, calling it “full, fair and firm,” and asked EZchip to amend the merger agreement to include a 30-day window during which EZchip can solicit other offers, and also to eliminate the breakup fee.
Mellanox also asked for the vote to be held by EZchip shareholders to approve the deal to be postponed. A new date for the vote has not yet been set.
Mellanox Chief Executive Eyal Waldman said the amendments “conclusively demonstrate that our offer represents the best available option for EZchip shareholders.”
Proxy advisor Institutional Shareholder Services (ISS) has recommended that shareholders should vote in favor of the deal. However, another proxy adviser, Glass, Lewis & Co, has said that shareholders should vote against the deal.
To hedge its position in EZchip, Raging Capital acquired put options at $25 per share, leaving it open to criticism by ISS and others its interests are not aligned with other EZchip shareholders since it makes money if EZchip shares fall.
Raging Capital has since responded that it acquired the put options because it had concerns about EZchip’s management. (Reporting by Liana B. Baker in New York; Editing by Phil Berlowitz)