ANALYSIS: KLAC-ICOS makes sense, pending typical M&A quirks

by James Montgomery, News Editor, Solid State Technology

Feb. 26, 2008 – The proposed combination of KLA-Tencor and ICOS Vision Systems makes sense for both sides, both financially and in market positioning, though as always some questions need to be answered about just how smooth any such M&A will be.

Days ago KLAC offered to buy ICOS for about $465M in cash. During ICOS’ conference call discussing its recent 4Q results, ICOS president/CEO Anton De Proft noted that board members holding ~20%-25% ownership stake have committed to the offer.

A Reuters report cited analysts indicating the price is right — ICOS’ shares are fresh off a 2.5-year low, and could take nearly as long to climb to KLAC’s proposed offer). The report also noted that a vast majority of ICOS shares are in “free-float,” meaning KLA-Tencor needs to win support from a large number of individual shareholders rather than a few large investor groups.

ICOS and RVSI have been speculated as other possible takeover targets in backend inspection going back at least to the multiparty tug-of-war for August Technologies two years ago.

Gartner Dataquest research VP Bob Johnson thinks the deal gives KLA-Tencor an entry into the backend part of the metrology sector, “one which they currently do not participate in, and one where Rudolph/August has a strong position,” having been the origin of the company’s macro systems, he told WaferNEWS. Further, “ICOS does have proven inspection capabilities for products which do not require sub-100nm capabilities – this is an area where KLAC has not been historically strong, so this technology can help there.” He added that there also may be some synergy between ICOS’ solar wafer inspection capabilities and KLA/ADE’s raw wafer inspection technology.

From a business standpoint, Johnson noted that KLAC is using its cash to grow faster than the overall market, “because the growth rates of their fundamental markets have slowed. This appears to be one of the few companies left with potential synergy with KLAC’s core technology (inspection),” he said. Also, since this is a cash transaction, KLAC gains revenue and profit with no stock dilution, so its EPS will go up, he pointed out.

One thing to watch for, as always in M&A deals, is how proposed synergies actually play out across the organizations, including mixing business cultures — something possibly more at play in this deal combining US and European organizations. “Whether there will be a culture clash remains to be seen,” Johnson noted.


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