KLA-Tencor Corporation (KLAC) is buying Israeli automated optical inspection equipment company Orbotech Ltd. (Nasdaq: ORBK) in a deal worth $3.4 billion. Orbotech's current market cap is $2.9 billion.
The companies announced that KLA-Tencor will acquire Orbotech for $38.86 in cash and 0.25 of a share of KLA-Tencor common stock in exchange for each ordinary share of Orbotech, implying a total consideration of approximately $69.02 per share. The transaction values Orbotech at an equity value of approximately $3.4 billion and an enterprise value of $3.2 billion.
As with most Israeli technology companies traded in New York, there is no controlling interest in Orbotech. The chief beneficiary is Kobi Richter, who owns 5.4% of the company, and will receive $180 million for his stake. In 1983, Kobi Richter and his brother Yochai were among the founders of Orbot, which in 1992 merged with another Israeli AOI company Optrotech (founded by a team led by Shlomo Barak in 1981) to form Orbotech. Yochai Richter, who is chairman of Orbotech and owns 2.1%, will receive $70 million. Kobi Richter's wife Judith owns shares worth $29.2 million under the deal terms.
Only two financial institutions are parties at interest in Orbotech, one American and one Israeli. They are New York-based Renaissance Technologies, which holds 5.2% of the company, worth $174 million under the deal, and Clal Insurance, which owns 5%, worth $167 million.
"This acquisition is a true testament to Orbotech's strong leadership and success," said Orbotech CEO Asher Levy. "I firmly believe that this deal benefits our employees and creates additional value for our shareholders. Together with KLA-Tencor, we will significantly increase growth potential, accelerate our product development roadmap, and enhance customer offerings. Orbotech will continue to operate under the Orbotech brand as a standalone business of KLA-Tencor based in Yavne, Israel."
Orbotech develops technologies used in the manufacture of advanced electronic products. Its equipment is used in three main industries: flat panel displays, printed circuit boards, and semiconductors. In a past interview with "Globes", Levy said, "The chances that someone holds in their hand a smartphone or tablet that Orbotech did not have something to do with its production, design or inspection are pretty much zero."
The announcement of the acquisition states, "With this acquisition, KLA-Tencor will significantly diversify its revenue base and add $2.5 billion of addressable market opportunity in the high-growth printed circuit board, flat panel display, packaging, and semiconductor manufacturing areas. The broader portfolio of leading products, services, and solutions, as well as increased exposure to technology megatrends, will support KLA-Tencor's long-term revenue and earnings growth targets."
"This acquisition is consistent with our strategy to pursue sustained, profitable growth by expanding into adjacent markets," said KLA-Tencor president and CEO Rick Wallace. "This combination will open new market opportunities for KLA-Tencor, and expands our portfolio serving the semiconductor industry. Our companies fit together exceptionally well in terms of people, processes, and technology. In addition, KLA-Tencor has had a strong presence in Israel over the years, and this combination further expands our operations in this important global technology region."
Total cost synergies are expected to be approximately $50 million on an annualized basis within 12 to 24 months following the closing of the transaction, and the transaction is expected to be immediately accretive to KLA-Tencor's revenue growth model, non-GAAP earnings and free cash flow per share.
Orbotech had sales of $901 million in 2017 and posted a non-GAAP net profit of $142 million. The company expects sales in excess of $1 billion in 2018. In the longer term, the company sees revenue of $1.25 billion and a net profit of $275 million in 2020.
Orbotech's $2.9 billion market cap is a seventeen year high. Its share price has risen 87.3% over the past year, and 1,700% since the low it reached in 2008.
The transaction has been approved by the board of directors of each company and is expected to close before the end of calendar year 2018, subject to approval by Orbotech's shareholders, required regulatory approvals and the satisfaction of the other customary closing conditions. No approval by KLA-Tencor stockholders is required.
The transaction is not subject to any financing conditionality. KLA-Tencor intends to fund the cash portion of the purchase price with cash from the combined company's balance sheet. In addition, KLA-Tencor intends to raise approximately $1 billion in new long-term debt financing to complete the share repurchase.
Barclays advised Orbotech in the deal and JP Morgan advised KLA-Tencor.
In addition, KLA-Tencor announced a $2 billion share repurchase authorization. The share repurchase program is targeted to be completed within 12 to 18 months following the close of this transaction.
Published by Globes [online], Israel business news - www.globes-online.com - on March 19, 2018
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