Activists Are Still Fighting Tooth-and-Nail Against These Pending Mergers

Driehaus Capital and Richard Driehaus have reiterated their belief that Willis Holdings Group plc (NYSE:WSH)’s offer for Towers Watson & Company (NYSE:TW) substantially undervalues the company, citing Towers Watson’s latest quarterly report. Driehaus Capital used the occasion to remind Towers Watson shareholders to vote against the deal unless Willis Holdings improves their offer. The fund holds 1.17 million shares or approximately 1.6% of Towers Watson’s outstanding stock.

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News of the deal between Willis Holdings Group plc (NYSE:WSH) and Towers Watson & Company (NYSE:TW) broke on July 1 and has sent the shares of the latter tumbling. Why? Because Willis’ offer was actually less than the value of an open market share at that time. They offered 2.649 shares of Willis Group and a one-time dividend of $4.87 per share in exchange for 50.1% of Towers Watson’s common stock, which, at that point, was worth 10% less than the market value of the control package. Driehaus Capital was furious with the terms and fired a letter off to the Board of Towers Watson pointing to similar deals involving 30% premiums as opposed to a 10% discount. Yesterday morning, Towers Watson posted its first quarter earnings for fiscal year 2016, which came in at $1.49 per share in earnings, surpassing analyst estimates of $1.34 per share. Revenues came in at $895 million, also beating estimates of $879 million. This has given Driehaus Capital more ammunition in its stance against the merger deal as it currently stands.

At the end of the second quarter, top hedge funds held an insignificant 4.4% of Towers Watson & Company (NYSE:TW)’s common stock, valued at $379 million. Chuck Royce was among the 24 funds that reported stakes in the company at the end of June. His fund, Royce & Associates, held 786,371 shares, down by 30% during the second quarter. Clifford Fox, on the other hand, boosted his stake by 79% to amass 632,358 shares by the end of the second quarter.

On the following page we look at another activist who continues to fight against a separate merger deal.

William C. Martin, the manager of Raging Capital, has made good on his promise to fight Mellanox Technologies, Ltd. (NASDAQ:MLNX)’s takeover of EZchip Semiconductor Ltd (NASDAQ:EZCH). Raging Capital recently sent an open letter to fellow shareholders of EZchip Semiconductor urging them to vote against the deal that it believes is severely undervaluing the company. The fund currently holds 1.94 million shares of the Israel-based semiconductor company, which accounts for 6.5% of its common stock.

The EZchip Semiconductor Ltd (NASDAQ:EZCH) annual shareholder meeting is scheduled for November 12 and the main item on the agenda will be the proposed takeover by Mellanox Technologies. The two companies have reached an agreement for EZchip to be bought for $811 million or $25.50 per share. One of the largest shareholders of the semiconductor company, Raging Capital believes Mellanox’s offer considerably undervalues the company and have slammed the management of EZchip for failing to conduct a proper sale process, instead arranging a “merger of convenience between friends.” They are adamant current terms will see Mellanox as the sole beneficiary of all the upside potential of EZchip and are actually against the company being sold at all. The fund has reiterated its stance as a long-term committed shareholder and believes the company offers “substantial potential upside […] well in excess of the limited risk,” referring to changes in the network processor market that will allow EZchip to strengthen its already dominant position, as well as the new generations of chips the company is preparing for launch.

In its letter, Raging Capital is making a solid case against the sale of EZchip and is urging shareholders to vote against the deal. Furthermore, the fund has nominated Paul McWilliams and Ken Traub for election as Directors on the company’s Board, stating that a reshaping of the Board of Directors is essential to protect the interests of shareholders. Jim Simons‘ Renaissance Technologies is among those shareholders, with the fund having reported ownership of 277,800 shares as of the end of the second quarter. In general, not many hedge funds are interested in EZchip, as only nine in our database reported long positions in the stock as of the end of the second quarter, with their combined holdings valued at $26 million.

Disclosure: None