“The purpose of stock grants to directors is to increase alignment with shareholders and ensure that directors have a personal financial interest in the company,” Peter Feld, a managing member of Starboard, wrote in the letter. “The actions of Mellanox’s non-executive directors suggest the opposite.”
Last fall, Starboard — one of the highest-profile activists around, having ousted the entire board of Olive Garden’s parent company — disclosed that it had taken a nearly 11 percent stake in Mellanox.
Behind the investment was a belief that the company, which is based in Sunnyvale, Calif., and Israel, needed to improve its operations, including by being more focused on its research costs, or consider selling itself. Starboard’s interest in Mellanox arose after another semiconductor manufacturer that the hedge fund was invested in, Marvell, had unsuccessfully sought to merge with the chip company.
In its letter, Starboard argued that Mellanox insiders sold their shares at an average price lower than the $63.65 where the company’s stock closed on Friday. At the same time, the hedge fund argued, the chip maker has doled out significant amounts of stock as compensation to its executives compared to its peers.
Starboard said that its analysis showed that Mellanox’s management and directors appear to have sold their shares soon after their equity grants have vested.
Mellanox did not immediately respond to a request for comment.