Thank God I'm not a news editor, otherwise my Israeli headline for this stormy week would have come from New York - not from the UN Building, but from Wall Street. I would have every Israeli correspondent currently thronging the city cover the story of an Israeli company's "strong, fast, and elegant" move, despite the new jump in the Chicago Board Options Exchange Volatility index (VIX), also known as the fear index.
As storms rage in the market and in Middle Eastern diplomacy, Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX) has raised a gross $110 million in a secondary offering, including the overallotment options that the underwriters were quick to exercise immediately afterwards - even through they had the usual 30-day exercise period, which would have given them chance to wait for Black September to pass.
I believe that this offering and general achievements by Israel's real Silicon Valley in Yokne'am - where Mellanox, Marvell Technology Group (Nasdaq: MRVL), EZchip Semiconductor Ltd. (Nasdaq: EZCH; TASE:EZCH), Given Imaging Ltd. (Nasdaq: GIVN; TASE: GIVN), and other companies are based - will strengthen the Israeli economy, and ensure the future of the protest generation that emerged this summer, more than any of the things under discussion by committees, whether in Jerusalem or in New York.
The offering was a dizzying success for Mellanox, because at $31.75 per share - the closing price of the offering - the company is pricing its 2011 results at a high profit multiple of 29, and a sales multiple of over 4. Investors love the company because it offers some of the best state-of-the-art solutions in the industry. From the chipset to the switch, for the most critical tasks in the current era of exploding information on networks, optimal connectivity between servers at computer and storage centers, with the shortest delay possible in data transmission.
Two events happened in late 2010, which greatly contributed to Mellanox's achieving a $1 billion market cap in 2011. The first was the acquisition of Voltaire for a net $175 million in cash, which greatly expanded the company's product offering, and which was a very sagacious use of its considerable cash reserves of over $200 million at the time. This week's secondary offering boosts Mellanox's cash reserves back to over $200 million, and founder, chairman and CEO Eyal Waldman will presumably go on a new hunting trip.
The second event was the strategic decision by Oracle Corporation (Nasdaq: ORCL) to build its Big Data hardware solutions for the cloud computing era on the basis of Mellanox's Infiniband technology. In the wake of this decision, large investment institutions, especially in the US, which had not previously heard of Mellanox, or did not know enough about it, added it to their portfolios. The result was a jump in the share price, sending the market cap over the $1 billion threshold.
Oracles triumvirate, Larry, Mark, and Safra, as Credit Suisse lovingly called them, after the company published good results on Tuesday, apparently wanted to acquire Mellanox. After Waldman - who talks about $1 billion in sales at every opportunity - unequivocally declined, they decided to block the company's sale to a third party by acquiring 10.2% of Mellanox on the market.
To avoid dilution of this 10.2% stake, Oracle will likely now have to buy 350,000 Mellanox shares, either as part of the secondary offering, or on the market.
In the past few quarters, Oracle has accounted for at least 10% of Mellanox's sales, because of two types of high-performance servers based on Mellanox components. On Tuesday, Oracle founder and CEO Larry Ellison said that sales of these servers had annualized double-digit growth in the quarter, even though sales of lower-performance servers fell in the quarter, and he decided to drop those in due course.
Published by Globes [online], Israel business news - www.globes-online.com - on September 22, 2011
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