Starboard Value to Launch Proxy Fight for Entire Board at Mellanox -- 2nd Update

By David Benoit Features Dow Jones Newswires

Starboard Value LP is launching a fight to remove the entire sitting board at semiconductor company Mellanox Technologies Ltd., the latest attempt by the New York activist to take over a whole boardroom.

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Starboard will nominate two of its own partners, co-founders Jeffrey Smith and Peter Feld, and seven others largely from the semiconductor world, according to a letter to investors Starboard sent Wednesday. The activist took a 10.7% stake in the company last November and has pressured it to boost margins or explore a potential sale.

The Wall Street Journal earlier Wednesday had reported the details of the letter.

After the company boosted its 2018 margin targets in a public presentation last month, Starboard this month criticized the predictions as failing to be enough and still lagging peers. That has been the factor leading Starboard to seek the entire board, the letter said. The fund said it would consider adding back two current directors "to ensure a degree of continuity," if all nine nominees are elected.

A spokesman for Mellanox wasn't immediately able to comment Wednesday. When Starboard had originally announced its stake, Mellanox said its board reviews operational and strategic priorities regularly.

Mellanox, with a $3.3 billion market value as of Wednesday's close, specializes in technologies for high-speed computing and is a leader in the InfiniBand systems that help power supercomputers, as well as Ethernet products. Its high-powered products are used in the giant data centers that make cloud-computing possible. Chief Executive Eyal Waldman was a co-founder of the company in 1999.

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Fighting for an entire board is rare for activists, but Starboard has made a name for itself with dramatic shake-ups, famously sweeping the entire board at Olive Garden parent Darden Restaurants Inc.

The New York activist investor has a long record of successful semiconductor investments, highlighted last year by Marvell Technology Group's $6 billion deal for Cavium Inc., less than two years after Starboard arrived and the company promptly ousted its founders.

Starboard had earlier disclosed that Mellanox had rebuffed an approach from Marvell to discuss a potential deal.

Mellanox's margin expectations will be at the center of the debate ahead of the annual meeting in the spring where investors will vote on the board.

"Mellanox's targets for operating performance have been set far below acceptable expectations, and the company has not shown any ability to meet even its own underwhelming targets," Starboard writes in the new letter.

However, in his December presentation, Mellanox's Mr. Waldman said his company has become "much more diversified" and that the targets for 2018 were "very good." He touted the idea that the company was getting back to more growth and was in strong markets.

Shares of Mellanox have jumped 49% in the past three months on the heels of the Starboard investment and edged up 0.2% after hours Wednesday. They had previously been underperforming the market and peers.

Write to David Benoit at david.benoit@wsj.com

(END) Dow Jones Newswires

January 17, 2018 17:28 ET (22:28 GMT)