Shares of Nvidia (NVDA) and Mellanox (MLNX) are on the rise after the companies reached an agreement under which Nvidia will acquire Mellanox for $125 per share in cash.
WHAT'S NEW: Before the market open, Nvidia and Mellanox announced that they reached a deal under which Nvidia will acquire Mellanox for $125 per share in cash, representing a total enterprise value of roughly $6.9B. Once finalized, the combination is expected to be immediately accretive to Nvidia's adjusted gross margin, adjusted earnings per share, and free cash flow. “The emergence of AI and data science, as well as billions of simultaneous computer users, is fueling skyrocketing demand on the world’s datacenters,” said Jensen Huang, founder and CEO of Nvidia. The transaction has been approved by both companies’ boards of directors and is expected to close by the end of calendar year 2019, subject to regulatory approvals as well as other customary closing conditions, including the approval by Mellanox shareholders of the merger agreement.
“Addressing this demand will require holistic architectures that connect vast numbers of fast computing nodes over intelligent networking fabrics to form a giant datacenter-scale compute engine,” added Huang.
WHAT'S NOTABLE: On February 13, The Marker reported that representatives of Xilinx (XLNX) were aiming to close a deal to acquire Mellanox the week prior, though a dispute over price arose between the parties that led to a retreat in the negotiations. In addition, Bloomberg reported last week that Xilinx cancelled out of Evercore ISI's roadshow on Tuesday, fueling further speculation that a deal may be in the works.
ANALYST OPINION: Following the announcement, Stifel analyst Kevin Cassidy maintained a Hold rating on Nvidia and a Buy rating on Mellanox, saying he applauds the proposed transaction. The analyst said that the nest stage of data center computing performance increases will be delivered by heterogeneous computing and intelligent networks, and that he sees the parellel computing technology from Nvidia combined with Mellanox's network processors and high performance interconnects as "key ingredients" for the next generation data centers. Meanwhile, analysts from Susquehanna and Piper Jaffray downgraded Mellanox to Neutral after the deal announcement.
PRICE ACTION: In afternoon trading, shares of Mellanox and Nvidia were 8.3% and 7.4% higher, respectively. Meanwhile, Xilinx shares rose 2.7%.
Nvidia
+11.05 (+7.33%)
Bought by NVDA
+9.26 (+8.47%)
Xilinx
+3.32 (+2.80%)