Israeli semiconductor company Mellanox (Nasdaq: MKNX) is close to a compromise agreement with activist fund Starboard Value LP, according to a report by Reuters citing "people familiar with the matter." The report says that the two sides are close to agreement on the composition of Mellanox's board of directors. In a month's time, a shareholders' meeting is due to take place at which candidates proposed by Mellanox and by Starboard will stand for election to the board. Reuters reports that the agreement between the two sides provides that two of Starboard's eight candidates will be appointed directors. There was no comment from Starboard, and Mellanox declined to respond.
According to Reuters, Mellanox chairman Irwin Federman will remain in the post, while Peter Feld, a Starboard portfolio manager, will not join the board. The agreement also includes a provision that the fund will support the board and the company for at least a year, Reuters says.
Mellanox, headed by founder and CEO Eyal Waldman, develops and sells communications equipment for rapid data transfer, and has a market cap of $4.5 billion on Nasdaq. Starboard, which became an investor in Mellanox last November, holds a 10.5% stake in the company. The fund criticized Mellanox's low operating profitability in comparison with similar companies, and revealed that chipmaker Marvell had expressed interest in acquiring Mellanox but had been rebuffed. Starboard subsequently proposed candidates on its behalf for the Mellanox board.
Mellanox's board and management opposed Starboard's demands and argued that accepting demands to cut costs would perhaps lead to a short-term rise in profit but would strangle long-term innovation and growth. "Growth takes vision, time, investment, expertise and patience - but the upside is significant and more sustainable than financial engineering," the Mellanox board stated in a letter to shareholders in March this year.
Meanwhile, Mellanox shareholders have benefitted from the proxy battle that developed. Since Starboard reported its investment in Mellanox, the latter's share price has risen 68%. Improved financial results also helped.
Published by Globes [online], Israel business news - www.globes-online.com - on June 18, 2018
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