NEW YORK (TheStreet) -- Shares of Mellanox Technologies (MLNX) - Get Report were falling 9.1% to $36.14 with heavy trading volume on Wednesday after the Israeli chipmaker announced it will acquire EZchip Semiconductor (EZCH) in an $811 million deal.
Mellanox will pay $25.50 a share in cash to buy all outstanding shares of the California-based 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.
"The synergies between EZchip and Mellanox create attractive opportunities," Mellanox President and CEO Eyal Weldman said in a statement. "We expect our combined technologies, and product portfolios to deliver leading end-to-end intelligent interconnect and processing solutions to data centers and wide area networks."
About 2.8 million shares of Mellanox were traded by 12:02 p.m. Wednesday, well above the company's average trading volume of about 646,000 shares a day.
TheStreet Ratings team rates MELLANOX TECHNOLOGIES LTD as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
We rate MELLANOX TECHNOLOGIES LTD (MLNX) 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 compelling growth in net income. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- MLNX's very impressive revenue growth greatly exceeded the industry average of 11.5%. Since the same quarter one year prior, revenues leaped by 58.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- MLNX's debt-to-equity ratio is very low at 0.00 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 3.79, which clearly demonstrates the ability to cover short-term cash needs.
- MELLANOX TECHNOLOGIES LTD reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. Stable earnings per share over the past year indicate the company has sound management over its earnings and share float. However, the consensus estimates suggest that there will be an upward trend in the coming year. During the past fiscal year, MELLANOX TECHNOLOGIES LTD's EPS of -$0.54 remained unchanged from the prior years' EPS of -$0.54. This year, the market expects an improvement in earnings ($2.74 versus -$0.54).
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, MELLANOX TECHNOLOGIES LTD's return on equity significantly trails that of both the industry average and the S&P 500.
- MLNX is off 6.10% from its price level of one year ago, reflecting the general market trend and ignoring their higher earnings per share compared to the year-earlier quarter. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- You can view the full analysis from the report here: MLNX