At first glance, the acquisition of Voltaire Ltd. (Nasdaq:VOLT) by Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX) appears to be obvious. Both are Israeli companies, and both have the same customers and face the same threats.
But a past comment by Mellanox chairman, president and CEO Eyal Waldman, who founded the company, raises an interesting question about the motives for the acquisition. Shortly after Mellanox's IPO on Nasdaq in March 2007, he told "Globes", "We want to become the largest and best Israeli fabless company."
But something has changed since then. The acquisition of Voltaire proves that creating a large semiconductor company is no longer on the agenda, at least anytime soon. Over the years, Mellanox examined almost every Israeli semiconductor start-up, as well as quite a few foreign firms, but decided to buy a telecommunications equipment manufacturer whose value is based on software. This is far from the original vision.
An examination of the world's large telecommunications semiconductor companies, such as Broadcom Corporation (Nasdaq: BRCM) and Marvell Technology Group (Nasdaq: MRVL), will show that they started out with acquisitions that focused solely on technology in order to expand. Marvell expanded by an order of magnitude through its acquisition of Israel's Galileo Communications in 2001, but it too is a semiconductor company. Marvell's acquisition of Israeli software company Radlan was not on a scale that would nearly empty the coffers, as is the case of the Mellanox-Voltaire deal.
RBC Capital Markets anayst Daniel Meron believes that since the acquisition of Voltaire by Mellanox has been agreed, no competing offer will be made. Any potential buyer would have been customers of both companies, such as Hewlett Packard Co. (NYSE: HPQ), IBM Corporation (NYSE: IBM), or Oracle Corporation (Nasdaq: ORCL), and it should be assumed that they gave their blessing to the current deal.
Voltaire was on the shelf almost from the outset. A document that is supposed to describe the acquisition process and which will shed some light on goings on behind the scenes, is due to be published in a few weeks ahead of Voltaire's general shareholders meeting. Until then we'll have to guess whether there was another offer on the table. If there was, then it might have been a real motive for Mellanox to preempt it with an offer of its own.
Earlier this week, Waldman said that customers told him to make the deal. The comment was taken literally, but it is also possible that a potential customer of both companies tailored a large deal in the data centers market, and the capabilities of Voltaire were an important part of it.
To build a great company takes a touch of delusions of grandeur, a trait that Waldman may have. The acquisition of Voltaire proves that he knows how to weigh market forces.
Published by Globes [online], Israel business news - www.globes-online.com - on December 7, 2010
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