EZchip jumps on acquistion speculation

Bank of Jerusalem’s Jonathan Kreizman: The likelihood that the company will be sold is not great.

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Will EZchip Semiconductor Ltd. (Nasdaq: EZCH; TASE:EZCH) be sold to a global technology giant? Speculation that it might led to a steep rise in EZchip’s share price at the end of last week On Thursday, without anything being reported by the company, its share price shot up by 10.5% on a high volume. Reuters disclosed the source of the speculation: the company cancelled its participation in two investor conferences taking place at the end of this week, in New York and in San Francisco, and this set off a wave of rumors to the effect that the cancellation was because of a deal being put together for the sale of the company. The report cited analyst Jay Srivatsa of Chardan Capital Markets as saying that there was nothing new in the speculation, but that EZchip was likely to be an acquisition target.

EZchip is traded both on Nasdaq and in Tel Aviv, and at the current share price, about $27.9, it has market cap of $815 million. The company, which is managed by Avi Fruchter, develops chipsets for routers on large telecommunications networks for telecommunications equipment manufacturers.

“Such speculation exists, but in my view the likelihood that the company will be sold is not great, ” says Bank of Jerusalem analyst Jonathan Kreizman today. He recalls something similar that happened six months ago, when EZchip’s share price spiked because of rumors that it was about to be sold. “Last week there was unusual trading in options, but the share price did the same thing in February, when it rose by almost 20% and touched $30, with a similar trading pattern, ” Kreizman says. “What the two incidents have in common, ” he adds, “is that the trigger for the rise was exceptional trading in the call options.”

In the view of Kreizman (who rates the stock “Buy”), an acquisition scenario is “not terribly likely”. “The size of EZchip is such that, on the one hand, it is not small enough to be an easy acquisition like a start-up, while, on the other hand, it is also not big enough to form a substantial arm or complementary business with a volume large enough for its big competitors, ” Kreizman argues.

It was actually EZchip itself that made an acquisition recently. In early June, the company announced the acquisition of Tilera of the US, in a deal that could be worth $130 million, subject to meeting milestones. Tilera is a privately held company that develops high performance processors for data center networks. It has offices in Silicon Valley, California, and in Boston.

 

Published by Globes [online], Israel business news – www.globes-online.com 

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