NEW YORK (TheStreet) -- Shares of EZchip Semiconductor (EZCH) were gaining 14.5% to $25.18 with heavy trading volume on Wednesday after the announcement that Israeli chipmaker Mellanox Technologies (MLNX) - Get Report will acquire the California-based semiconductor company in an $811 million deal.
Mellanox will pay $25.50 a share in cash to buy all outstanding shares of EZchip as part of the acquisition agreement.
The acquisition is expected to close sometime in the first quarter of 2016. Mellanox expects the acquisition to be accretive from the first day.
Mellanox said it plans to retain the existing product lines from both companies following the merger. The two companies generated combined revenues of $668 million in the 12 months that ended on June 30, 2015.
"Joining forces with Mellanox represents numerous synergies that create a true powerhouse for connectivity and processing," EZchip CEO Eli Fruchter said in a statement. "With Mellanox's leading layer 1 - 3 connectivity solutions for data centers and EZchip's leading layer 3 - 7 processing solutions for carrier networks, the two companies complement each other in technology, products, markets served and customers."
About 5.3 million shares of EZchip were traded by 3:38 p.m. Wednesday, well above the company's average trading volume of about 140,000 shares a day.
TheStreet Ratings team rates EZCHIP SEMICONDUCTOR LTD as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
We rate EZCHIP SEMICONDUCTOR LTD (EZCH) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth greatly exceeded the industry average of 11.5%. Since the same quarter one year prior, revenues rose by 27.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- EZCH has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 13.05, which clearly demonstrates the ability to cover short-term cash needs.
- The gross profit margin for EZCHIP SEMICONDUCTOR LTD is currently very high, coming in at 80.40%. Regardless of EZCH's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 19.17% trails the industry average.
- The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and the Semiconductors & Semiconductor Equipment industry average. The net income has decreased by 12.8% when compared to the same quarter one year ago, dropping from $6.21 million to $5.42 million.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, EZCHIP SEMICONDUCTOR LTD's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: EZCH