Two Tech Stocks Moving Opposite Ways On Same News; Hedge Funds Say to Bet on the One in Red

Mellanox Technologies, Ltd. (NASDAQ:MLNX) has announced earlier today that it will acquire EZchip Semiconductor Ltd (NASDAQ:EZCH) in a transaction valued at $811 million, driving the shares of both companies in opposite directions. EZchip surged by over 14% in the intraday trading on Wednesday, while Mellanox lost over 6%. However, hedge funds have been bullish on Mellanox, and not so thrilled regarding EZchip, according to our data.

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The all-cash transaction between Mellanox and EZchip, will be covered with cash on hand and $300 million in fully committed financing. Mellanox will acquire each share of EZchip for $25.50, which represents a 16% premium to the stock’s close on Tuesday. Mellanox, which sells solutions that enable servers, computers and databases to interconnect, expects the deal to be immediately accretive to adjusted earnings.

In a conference call about the deal, Eyal Waldman, CEO of Mellanox, said that EZchip, which makes data communications chips for the carrier, cloud and data center network market, will boost the combined company’s addressable market by $2.2 billion to $14.5 billion in 2017, according to Reuters. According to Nomura analyst Sanjay Chaurasia in a research note, Mellanox and EZchip have little overlap in terms of customers, which presents an opportunity for the combined company to grow over the next few years. Waldman is quoted mentioning Huawei, ZTE, Ericsson and Avaya as EZchip customers that have the potential to become Mellanox customers after the deal is completed.

The hedge fund sentiment at the end of the second quarter, shows more confidence towards Mellanox than EZchip, which can be explained by the market capitalization of both companies. At the end of June, 34 hedge funds in our database held long positions in Mellanox Technologies, Ltd. (NASDAQ:MLNX) worth $408.97 million in aggregate, equal to 18.30% of the company. However, as the number of funds with long positions increased by six over the quarter, the total value of their holdings appreciated by 5.53%, amid a 7.17% increase of the stock. At the end of the second quarter, Scopia Capital managed by Matt Sirovich and Jeremy Mindich held the largest stake among the investors we track, which contained 1.88 million shares. This stake, however, was reduced by 41% from the previous quarter. Donald Chiboucis’ Columbus Circle Investors, on the other hand, increased its stake by 19% to about 1.0 million shares.

In contrast, the data regarding EZchip Semiconductor Ltd (NASDAQ:EZCH), shows that most large investors overlooked the company or simply didn’t see a lot of potential in it. Nine funds reported stakes in EZchip Semiconductor Ltd (NASDAQ:EZCH), up by six over the quarter, while the total value of their stakes surged by more than 50% to $26.02 million, equal to 5.40% of the company at the end of June. William C. Martin’s Raging Capital Management was the largest shareholder of EZchip in our database at the end of June, reporting a new position of 798,014 shares. Meanwhile, Jim Simons’ Renaissance Technologies decreased its stake by 6% quarter-over-quarter to 277,800 shares.

Disclosure: None