Credence, LTX propose “merger of equals”

June 23, 2008 – Automated test equipment providers Credence and LTX say they have agreed to merge their companies in a deal that they project will save them ~$25M. While bullish on their combined prospects, investors seem to think otherwise.

Under terms of the deal, the combined firm will be led by mostly LTX execs — notably president/CEO David Tacelli, Mark Gallenberger VP/CFO, and five directors vs. four for Credence (whose own president/CEO Lavi Lev will assume chairman duties “for a transitional period,” with the same designation given to Credence CFO Casey Eichler). Credence shareholders, though, will hold a slightly higher percentage of the combined entity (50.02% vs. 49.98%). Calculating the exchange ratio based on shares outstanding as of June 20, each Credence common stock would be converted into ~0.6133 LTX shares.

“This merger, from a technical and business point of view, represents the logical next step for both companies’ long-term growth,” said Lev, in a statement. He pointed to combined strengths in RF, digital, mixed-signal and analog, in a “complementary product portfolio” for high-volume integrated device testing. “From a business perspective, the merger broadens our customer base and provides a strong opportunity for growth,” he added.

“Now more than ever, it is vital we deliver cost optimized test solutions focused on our customers’ specific technologies, product mix and device volume levels,” noted LTX’s Tacelli. “We believe the timely merger of Credence and LTX enables us to build a test company with the financial strength, growth opportunities, critical mass, and operational efficiency to lead the industry as it faces these challenges.”

Gallenberger noted that the merger should help the firms save $25M annually in “efficiencies associated with operating a larger business,” once integration is completed. The deal is expected to be accretive (non-GAAP), excluding restructuring charges, within 12 months of combined operations.

While Credence and LTX say the combination will broaden growth opportunities, investors aren’t as optimistic. Message-board investor reax was intensely negative on the LTXX side, suggesting the two companies compete in the same market segments with little R&D/test compatibility, suggesting technology/product overlap and eventually elimination. Some of the pithier comments: “The management is going to have to decide which customers they’ll [expletive] off.” And: “It will be a long while before the combined operation will see black ink.”


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