What happened
Shares of chip maker Mellanox Technologies (MLNX) jumped on Tuesday after hedge fund Starboard Value LP disclosed a 10.7% stake in the company. Starboard intends to influence the company's strategy, according to Reuters. Shares of Mellanox were up about 11% at 12:20 p.m. EST.
So what
Starboard has acquired a roughly $300 million stake in Mellanox, making it the largest shareholder. In its filing with the SEC disclosing the purchase, Starboard laid out its rationale: "The Reporting Persons' interest in the Issuer is solely based on their view that tremendous value can be created through operational improvements or other strategic alternatives."
Image source: Mellanox Technologies.
Starboard sees a "growing disparity between the Issuer's margins, growth, and stock price performance compared to its peer group." The hedge fund specifically noted Mellanox's disinterest in engaging in talks with Marvell Technology Group in the past. Starboard may push the company to engage with potential acquirers.
Shares of Mellanox have gone nearly nowhere since the beginning of 2014, and they remain far below their all-time high reached in 2012. That weak stock performance is despite strong revenue growth in the past few years.
Now what
Mellanox responded to the news with a statement: "In line with our commitment to drive enhanced shareholder value, the Mellanox board of directors and management team continually review our operational and strategic priorities and are committed to acting in the best interests of our shareholders."
Starboard now faces the task of pressuring Mellanox to change course. There's no guarantee that the hedge fund will succeed, and there's no telling how long it will take.
