Oracle Acquires 10.2% of Mellanox Shares on Open Market for $70m

Oracle is now the second largest holder of Mellanox shares, after Fidelity Management with 11.7%.

In a strategic move, software giant Oracle has accumulated 10.2% of Mellanox's ordinary shares on the open market. Since the share price has averaged around $20 over the last month, the sum of the purchase is estimated at $70 million. Oracle is now the second largest holder of Mellanox shares, after Fidelity Management with 11.7%. Other major stakeholders include Alger Management with 7.5% and CEO Eyal Waldman with 5.3%.

Last month, Oracle co-founder and CEO Larry Ellison said that Oracle's investment policy would encourage strategic partnerships with technology companies. Mellanox shares subsequently spiked by 7.8% in a single day due to ThinkEquity Partners' assessment that the Israeli company would be a likely objective.

Mellanox, a supplier of end-to-end connectivity solutions for servers and storage systems, won't be a target for a hostile takeover, Oracle said. Rather, its intention is to invest in Mellanox and support the future of Mellanox's InfiniBand products.

The possibility that Oracle might increase its hold on Mellanox with further open-market stock purchases, and eventually attempt a takeover, cannot be ruled out, but this scenario isn't likely. Waldman has been emphatic about keeping the company independent and building an Israeli giant in this sector, and he recently attempted unsuccessfully to acquire CopperGate.

Oracle also pointed out that the two firms have enjoyed a long-term strategic collaboration. "This allows Oracle to leverage Mellanox's InfiniBand products to create differentiated Oracle solutions like Exadata and Exalogic," it said. "A strong and friendly relationship with Mellanox is critical to Oracle."

While its products complement Oracle technology in the field of servers, Mellanox also collaborates technologically with Sun Microsystems, which was bought out by Oracle last year for $7.4 billion. Mellanox also expects to continue working with other technology vendors, such as IBM, Dell and HP.

Mellanox specializes in developing semiconductor-based communication devices installed in organizational data centers using InfiniBand protocols. The devices are used to connect servers with storage systems and assist in the transfer of data.

InfiniBand is a computing architectural standard to accelerate data transfer between computer components in small networks such as LAN, WAN and SAN. Its purpose is to improve performance, expandability, reliability, availability and the tasks of the next generation of servers.

Mellanox has also been involved in the new cloud computing trend. Its products enable faster data transfer and eliminate the delays that users frequently suffer.

"Mellanox has had a long-standing relationship with Sun, and now Oracle, that goes back over eight years," said Mellanox CEO Eyal Waldman. "We are pleased that Oracle has chosen to make this strategic investment in Mellanox and look forward to an expanding partnership that will maximize the potential of InfiniBand."

Mellanox shares were first issued on NASDAQ in February 2007 at $17 a share, or a company valuation of $500 million. Its shares are presently trading at about $21.25, or a company valuation of $718 million.