Orbotech buying Photon Dynamics for $290M

June 26, 2008 – Israeli firm Orbotech, a supplier of automated optical inspection equipment for printed circuit boards and flat-panel displays, has agreed to purchase Photon Dynamics for $290M in cash in an effort to spur growth and diversify their FPD businesses.

The $15.60/share offer represented a 35% premium over PHTN’s pre-announcement stock price — but that premium has almost evaporated by mid-day to just 3% as investors seemingly applaud the combination. (ORBK investors seem less enthused, that stock is down about 7%.) Both companies’ boards have approved the buyout, which is expected to close sometime in 2H08.

In a statement, Orbotech CEO Rani Cohen pointed to what the companies feel are “highly complementary skill sets, technologies and infrastructures [that] will open the door to significant enhancements in FPD yield management and process control, and will create potential for other production capabilities in the future.” The combined entity, he said, will be able to more comprehensively approach opportunities in the FPD market.

Jeffrey Hawthorne, Photon Dynamics president/CEO, called the proposed combined entity “a one-stop-shop that offers a complete line of yield management solutions” for FPD customers.

Photon Dynamics and Orbotech were ranked #11 and #12, respectively, in VLSI Research’s2006 rankings of FPD equipment sales, but both fell out of the top 15 in the analyst firm’s 2007 rankings released last month. Combined, they would have accounted for 2% of worldwide display equipment sales of $6.2B, which would crack VLSI’s top 15 display equipment ranking, according to VLSI Research’s Aida Jebens. She told SST that the combination is “more complementary than detrimental,” noting that both Orbotech and Photon Dynamics will leverage strength in the process diagnostics sector, where they ranked #1 and #4 in 2007, respectively. 77% of Orbotech’s sales come from defect inspection, and more than half (55%) of Photon Dynamics’ sales come from electrical instruments/defect inspection.

Photon Dynamics has been outsourcing more and more LCD tool manufacturing in an effort to add flexibility to its cost structure. Already this year it has signed over work to Ultra Clean and to Taiwan’s C Sun Manufacturing.

Orbotech, meanwhile, had been speculated in the past as a potential takeover target amid bigger inspection-sector M&A activity.


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