Jan. 10, 2003 — Veeco Instruments and FEI Co. said Thursday they won’t merge as planned, citing continued poor economic and market conditions.

The makers of metrology equipment and other technology for the small tech and semiconductor industries first announced the $1 billion deal in July, set to take effect at the end of 2002. But in December, with regulatory and shareholder approvals still pending, both firms announced the merger would not meet the year-end deadline.

Dec. 31 also marked the end of the penalty phase of the merger agreement, during which a company that wanted out of the deal would have to pay the other a $30 million breakup fee. As a result, neither Veeco nor FEI will pay any termination fees.

A Veeco official said it was the right deal at the wrong time.

“From the industry’s and our companies’ perspectives, the economy as a whole was expected to turn around,” said Debra Wasser, Veeco’s vice president of investor relations and corporate communications. “At this point, it was time to rethink the transaction. For Veeco, the fastest path for earnings growth is alone.”

Based on combined 2001 sales of $825 million, the two companies together would have constituted the sixth largest U.S. semiconductor equipment company and the third largest U.S. supplier of metrology equipment.

Both firms’ stocks, which trade on Nasdaq, closed higher Thursday. Veeco was at $14.47, up from $12.34 on Wednesday; FEI was at $18.75, up from $16.25.