It's fair to say that the planned $811 million acquisition of EZchip by Mellanox has not gone smoothly.

The acquisition of the network processor specialist, announced by both companies at the beginning of October, looked quite straightforward -- EZchip Technologies Ltd. (Nasdaq: EZCH) had some key expertise that Mellanox Technologies Ltd. (Nasdaq: MLNX) needed to flesh out its SDN and data center processor portfolio and both companies believed their futures were brighter as a combined entity. (See Mellanox to Buy EZchip, EZchip Bigs Up Its SDN, NFV Opportunities and EZchip Pitches New Chips at NFV.)

Then in late October, hedge fund Raging Capital, EZchip's largest single shareholder with about 6.7% of the stock, stepped in, claiming that the deal, at $25.50 per share, undervalued EZchip and that the board had not properly explored alternative bids. In a letter to EZchip's investors, Raging Capital urged them to vote against the Mellanox deal at EZchip's Annual General Meeting (AGM) on November 12 and to vote in favor of its two nominees to join the EZchip board.

The hedge fund followed with another letter on November 9 urging investors to vote against the "ill-advised merger" between two companies that are "friends" and both based in "the same small Israeli town of Yokneam."

EZchip responded with strongly worded statements about Raging Capital's "blatantly untruthful" public statements that "attempt to intentionally delude shareholders." (See this EZchip announcement.)

But Mellanox took fright. Only hours before EZchip's AGM, Mellanox requested revisions to the takeover deal that forced EZchip to delay the shareholder vote, though the shareholders' meeting still went ahead to deal with other matters. (See EZchip Postpones Vote On Proposed Merger With Mellanox.)

That delay may have given Raging Capital some encouragement, but neither of its nominees were voted onto the EZchip board, which still comprises all of the company's preferred nominees. "We believe the reelection of all of EZchip's directors is a vote of confidence in the Board and its commitment to maximizing shareholder value," said EZchip CEO Eli Fruchter in a post-AGM announcement. "The EZchip Board thanks our shareholders for their support and we will continue to work in the best interests of all shareholders."

EZchip's share price ended Thursday at $24.38, up nearly 1.9%, while Mellanox lost nearly 1.8% of its value to end the day at $45.52.

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Meanwhile, EZchip's business is on the up: In the midst of the activist investor shenanigans, it reported its best ever financial quarter, with revenues up by 60% year-on-year to $30.7 million and net income up more than 20% to $5.2 million, though it did also warn of an expected fourth-quarter slowdown due to some "near-term inventory adjustments across several key customers that are serving the carrier networking space." EZchip's customers include Cisco, Juniper and ZTE.

Will the furore attract other bids for EZchip? Mellanox will be hoping not, even though the delayed EZchip shareholder vote has opened the door for rival offers to be made public. This drama isn't over yet.

— Ray Le Maistre, , Editor-in-Chief, Light Reading