KLA-Tencor snaps up Therma-Wave for $75M

January 8, 2006 – Months after being rescued by a new credit line following a “going concern” warning, Therma-Wave Inc. has found a new savior — KLA-Tencor Corp., which has agreed to acquire the process control metrology system provider for $75 million in cash.

Robert Castellano, president of market research firm The Information Network, noted that despite having just 1.5% share of the overall metrology inspection market in 2005 and a little less than that in 2006, Therma-Wave does bring some technology to the table for KLA-Tencor. The company had 10% share in the thin-film metrology sector in 2005, an area led by KLA-Tencor with 19%, ahead of Rudolph Technologies’ 15%.

Therma-Wave also has experience in implant metrology, the subject of previous litigation between the two companies. In 1998-1999 they were engaged in a dispute over two patents regarding optical measurement systems that include a calibrating ellipsometer. That litigation was settled in 2001 with an exchange of technology licensing agreements, plus an undisclosed payment and pledge by Therma-Wave to modify its products to avoid using certain technologies.

“KLA-Tencor has a global reach and in-depth customer relationships that will extend our latest metrology technologies to a broader market,” said Boris Lipkin, Therma-Wave’s CEO, in a statement. Rick Wallace, CEO of KLA-Tencor, added that the acquisition expands KLA-Tencor’s portfolio of metrology tools with Therma-Wave’s advanced measurement capabilities.

The deal, which is expected to close during 1Q07 pending regulatory approvals, has been approved by Therma-Wave’s board of directors and has received commitment from 25% of the controlling stock held by company directors, executive officers, and Series B Preferred stockholders.

Therma-Wave was among a list of potential speculative buyout candidates in early 2005, following a bidding war for August Technologies among KLA-Tencor, Rudolph Technologies, and Nanometrics. But part of its potential attraction as a takeover target has been its financial situation.

In June 2006 Therma-Wave was cited the company as a “going concern” by its independent accounting firm, its second such designation within a year, regarding its financial reports for the fiscal year ended in March, due to recurring net losses (losses of $9.2 million, $6.8 million, and $18.1 million in its fiscal years 2006, 2005, and 2004, respectively) and negative cash flows ($16.2 million cash burn in FY06 and accumulated deficit of $317.0 million). Meanwhile, revenues slid 20% from the prior year, with nearly a fourth of those to a single customer, AMD.

In August 2006, Therma-Wave tacked on a year to its $15 million line of credit from SVB Silicon Valley Bank, to finance working capital needs through June 2008.


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