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Mellanox goes to Wall Street for cash

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Updated InfiniBand and Ethernet networking chip and equipment maker Mellanox Technologies announced after the market closed in New York on Monday that it would be issuing up to 3 million shiny new shares to raise some cash for working capital and strategic investments.

The offering, which has J.P. Morgan Securities, Credit Suisse Securities, and Barclays Capital doing the book running, will also allow Mellanox to kick out another 450,000 shares after 30 days in the event that Wall Street has an appetite for the stock. This will raise Mellanox' share count by 9.7 per cent and dilute the shares by 8.5 per cent – something that may not make investors happy.

In a supplemental S-11 shelf filing Mellanox said that it had 137.1 million ordinary shares authorized by its board, with 35.9 million of them having been floated to the public. The filing also indicates that software and server maker Oracle and Fidelity Management and Research together own 22 per cent of the outstanding shares in Mellanox and that company officers and directors have an aggregate of 29 per cent of the shares – giving this block of shares control of the company, with 51 per cent. With the 3 million new shares, plus the potential for 450,000 more, this block (assuming it thinks as a block) will not have control of the shares.

In the second quarter ended in June, Mellanox had $72.8m in cash and another $29m in short term investments, which is obviously not enough for the company to make acquisitions and perhaps not enough to compete against QLogic in the InfiniBand ASIC space and now Intel, which has just acquired Fulcrum Microsystems, an Ethernet chip maker. As El Reg has previously reported, Mellanox has launched an ambitious networking ASIC called SwitchX that will be able to handle Ethernet, InfiniBand, and Fibre Channel traffic – and eventually, all at the same time and on the fly. This kind of technology takes money, and so will selling against Cisco and Intel.

It is hard to say what price the Mellanox shares will sell at and how much money it will raise, but at the Friday closing price of $35.16 per share, the full 3.45 million in shares would raise $121.3m. The bankers will get a chunk of that, and the share price will probably drift down because of the dilution, so call it $100m. This is not a lot of money in the modern IT racket, but it may be enough to help ramp up SwitchX and make a few small, tactical acquisitions.

At the market close on Monday, Mellanox had a market cap of $1.22bn, making it a bit too big for many companies to acquire but well within the appetites of Oracle, IBM, Hewlett-Packard, Dell, or Cisco should they decide they want a bigger stake in InfiniBand and Ethernet switching and host adapters.

Updated: Late Tuesday night, Mellanox priced the shares at $31.75 a pop, and said that works out to $95.25m in cash raised. The company expects to net about $90.5m. That additional 450,000 shares could fetch the company another $13.6m at the same price. ®

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