Technology companies from Israel, the second-biggest source of foreign listings on the Nasdaq Stock Market behind China, are shunning share sales in favor of mergers after volatility soared to a three-year high in 2011.
Mellanox Technologies Ltd. (MLNX), the Israeli adapter maker that bought Voltaire Ltd. for $208 million last year, said on Feb. 19 that it’s considering another acquisition. EZchip Semiconductor Ltd. (EZCH) rose to a record in New York last week on speculation the chipmaker will be bought after competitors were acquired over the past two months. The Bloomberg Israel-US 25 Index (ISRA25BN) of the largest Israeli U.S.-listed companies climbed 0.3 percent to 87.09 last week. Israel’s TA-25 benchmark index dropped 2.3 percent, the most this year, at the close in Tel Aviv today.
Takeover deals by Israeli technology developers reached $5.1 billion last year, the most since 2006, while equity offers totaled $130 million, according to Tel Aviv-based Israel Venture Capital Research Center data. The gap was at the most in at least nine years. More than 200 companies globally postponed or withdrew initial public offerings over the past year as the Chicago Board Options Exchange Volatility Index, a measure of share-price swings, jumped the most since 2008.
“It has been much more difficult to do an IPO with the volatility in the markets,” Mark Moerdler, an analyst at Sanford C. Bernstein & Co., said by phone in New York on Feb. 24. “There’s demand for new technology and we’re seeing a lot of acquisitions as these companies have a lot of cash they want to deploy.”
Mellanox, which has about $63 million in cash from operations, increased 2.4 percent to $38.76 last week in New York. The Tel Aviv shares gained 1.8 percent to 143.20 shekels, or the equivalent of $37.95.
“A lot of companies are approaching us,” Chief Executive Officer Eyal Waldman said in an interview on Feb. 19 in New York. “We’ll only do another acquisition if we think it will help us grow faster.”
EZchip, an Israeli maker of processors whose biggest customers include Juniper Networks Inc. and Cisco Systems Inc., surged 8.3 percent to $40.49 last week. The Tel Aviv shares gained 3.1 percent today to 150.5 shekels, or the equivalent of $39.89.
Marvell Technology Group Ltd., maker of processors for the BlackBerry smartphone, bought EZchip competitor Xelerated AB last month, and Broadcom Corp., which makes chips that help mobile devices connect to the Internet, acquired processor developer NetLogic Microsystems Inc. on Feb. 17.
“There has always been acquisition pressure that has lifted EZchip due to the growth potential,” Andrew Uerkwitz, an analyst at Oppenheimer & Co. in New York said by phone last week. “This network processor company is poised to grow revenue and earnings rapidly as its next-generation product ramps up.”
Forced to Sell
EZchip Chief Executive Officer Eli Fruchter declined to comment on a possible buyout when contacted by e-mail on Feb. 24.
Israel’s largest companies may be forced to sell some of their subsidiaries after a government committee on economic concentration recommended last week that holding companies simplify their corporate structures to no more than three public layers within four years.
The firms were also asked to reduce cross holdings in financial and industrial businesses. The recommendations are awaiting Cabinet approval.
Should they be implemented, holding companies such as Nochi Dankner’s IDB Holding Corp. may have to sell one of their assets, which include Given Imaging Ltd., Noam Pincu, an analyst at Psagot Investment House Ltd. in Tel Aviv, wrote in an e- mailed report last week.
Given, an Israeli maker of pill-sized cameras for digestive diagnosis, is about 40 percent owned by IDB’s units, according to data compiled by Bloomberg.
Shares of Given (GIVN) advanced 3.4 percent to $19.40 in the U.S. last week. The shares in Tel Aviv added 1.1 percent today to 71.83 shekels, or the equivalent of $19.04.
Mellanox, EZchip and Given are all based in Yokneam, a town near Haifa that was developed as a center for high-tech companies that benefit from tax subsidies and investment grants.
Israel, whose population of 7.8 million is similar in size to Switzerland’s, has about 60 companies traded on the Nasdaq, the most of any country outside the U.S. after China. The nation is also home to more startup companies per capita than the U.S.
Gazit-Globe Ltd. (GZT), the Tel Aviv-based real-estate investor with properties from San Francisco to Sao Paulo, was the last Israeli company to list shares in New York after offering stock on Dec. 13.
IBM, Apple Buyouts
International Business Machines Corp. (IBM) said on Jan. 31 that it’s acquiring Worklight Inc. The world’s biggest computer- services provider sought the closely held provider of a mobile application platform for smartphones and tablets whose research and development is based in Shefayim, Israel, as it looks to enhance mobile-service offerings.
The announcement came less than three weeks after Apple Inc. (AAPL), the world’s biggest smartphone vendor, acquired Anobit Technologies Ltd., an Israeli company that makes flash-memory drive parts for the iPhone and iPad. Apple paid about $390 million, according to two Anobit shareholders, who spoke on condition of anonymity.
“The M&A route continues as the preferred liquidity channel for investors in 2011, and we expect it to remain as such in 2012,” Koby Simana, the chief executive officer of Israel Venture Capital, said in an e-mailed statement on Dec. 15.
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