How to profit from Mellanox's delisting

Shiri Habib-Valdhorn

Halman Aldubi: An investor who believes in a longer term deal and believes that the price is cheap, can exploit the drop in price and buy shares.

The upcoming delisting from the Tel Aviv Stock Exchange (TASE) by Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX) has drawn a lot of attention. Beyond the blow to the TASE, which sees its trading volume shrinking, and the questions of corporate governance that the issue raises, there are the practical questions that the average investor in the share might ask himself.

Halman Aldubi Investment House Ltd. has organized answers to the main questions, ahead of the upcoming delisting. Infiniband developer Mellanox, run by chairman, president and CEO Eyal Waldman, which has a market cap of $2.2 billion, has decided to list only on Nasdaq.

"The company sought to delist so that the rules of just one stock exchange will apply to it, and to focus on managing its business and cut costs," says Halman Aldubi. For its part, the TASE announced that it has accepted the request and delisting has been scheduled for September 1, 2013."

The day Mellanox delists from the TASE, every share will be exchanged for a share traded on Nasdaq. "In theory, there is no change in the value of the share, except for switching to another securities number and another stock exchange," says Halman Aldubi. Explaining the difference between a delisting and an offer to purchase, it says, "An offer to purchase involves a capital injection or other financing by the company to buy the public's shares, for example, to delist a company and take it private. This is not the case here."

As for an Israeli investor who does not want to hold a Mellanox share traded in the US, Halman Aldubi says, "After the share is delisted from the TASE, anyone who does not want to hold a foreign share will have to sell it while it is still traded in Israel."

The last trading day for Mellanox shares on the TASE is August 29.

Halman Aldubi also responds to the question what will index and tracking funds and ETFs do, and what the effect on trading will be. "Index and tracking funds and ETFs which track the relevant TASE indices will have to sell all their holdings, and they will presumably do so first. In this case, we can assume that there will be surplus demand for other shares on these indices," says the investment house.

As for the timing of the delisting of Mellanox from the Tel Aviv 25 Index, Halman Aldubi says that the company will be removed from the index on June 16, as part of the June update. As for the possibility of shorting the share, Halman Aldubi says that this possibility already exists for the company's shares on Nasdaq.

The main question is how to profit from the delisting. "Similar moves by dual-listed companies in the past created strong supply from funds and ETFs which had to sell their holdings because they tracked the relevant indices, resulting in sharp falls in the share price," says Halman Aldubi. "An investor who believes in a longer term deal and believes that the price is cheap, can exploit the drop in price and buy shares, but when the share is delisted at the end of August, he will have to hold the shares on a stock market in the US."

Published by Globes [online], Israel business news - - on June 3, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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