Dutch ASML rival to buy Silicon Valley Group
[TER could be bought out by rivals such as Advantest who looks to get into communication testing if it continues to be undervalued]
BY THERESE POLETTI
Mercury News
Silicon Valley Group Inc., one of the pioneering semiconductor equipment companies, said Monday that it agreed to be acquired by Dutch rival ASM Lithography Holding NV in a stock deal worth about $1.6 billion.
The deal, the second-largest merger in the chip equipment industry, will create the world's largest maker of lithography equipment -- used to etch increasingly small patterns onto silicon wafers.
San Jose-based Silicon Valley Group, with a total of 3,600 employees worldwide, will become a unit of ASML, which has 3,700 employees. Together, the two are expected to have just under 50 percent of the worldwide lithography market, where they compete with giants like the current leader, Nikon Corp., and Canon Inc.
But executives insisted in a conference call that gaining a leadership position in lithography was not the main reason for the merger. They cited the combination of ASM Lithography's ability to get its products into volume production quickly and Silicon Valley Group's ability to quickly develop cutting-edge tools.
``We will have a really powerful company,'' said Doug Dunn, chief executive of ASML.
Under the terms of the deal, Silicon Valley Group will become a wholly owned subsidiary of ASML. Silicon Valley Group shareholders will receive 1.286 ordinary shares of ASML for each share of Silicon Valley common stock. The deal represents a 58 percent premium for Silicon Valley Group shareholders, based on the closing price of the stock on Friday.
Silicon Valley shares surged 28 percent on Monday, jumping $7.38 to $33.69 in active trading. The American Depositary Receipts of ASM Lithography fell $2.44 to $29.88. Both trade on the Nasdaq.
One of the big wins in the deal for ASM Lithography is that it will gain chip behemoth Intel Corp. as a customer. Analysts also said support of the deal by the world's largest chip maker could help it pass any major regulatory hurdles that it will face.
``I believe that Intel played a role as a matchmaker in this transaction,'' said Sue Billat, an analyst with Robertson Stephens. ``Intel's blessing will help both companies when they go through the regulatory process.''
The merger is likely to face government scrutiny on two levels -- on the antitrust front, because the merged company will become the largest player in the lithography area, and possibly on a technological front, because lithography is seen as a crucial U.S. technology.
Dunn said it is impossible to predict when the merger could close. ``Four to six months is the achievable time scale,'' he said, but ``we are in the hands of government bodies and it's hard to predict, especially with the U.S. elections looming.''
``Silicon Valley Group is the very last of the pure-play, high-end lithography equipment suppliers,'' said Min Pang, an analyst with SG Cowen & Co. ``This is very critical technology, so ostensibly the government could look at this in terms of losing technology to a non-U.S. entity.'' SVG had previously tried to merge with Canon but faced several hurdles, including U.S. objections to foreign ownership, analysts said.
About 52 percent of Silicon Valley Group's anticipated fiscal 2000 revenues came from lithography. In fiscal 1999, Silicon Valley Group reported total revenues of $474 million. The company was founded in 1977 and has lost money in the past two fiscal years because of restructuring and design costs. In May of last year, Intel invested $15 million in the company and said it was working with SVG to develop next-generation photo-lithography tools.
The largest merger to date in the chip equipment business was Applied Materials Inc.'s acquisition of Etec Systems Inc. for $1.74 billion in stock earlier this year. Another large merger was KLA Instruments, which merged with Tencor Instruments in 1997 for $1.38 billion, to become KLA-Tencor Corp.
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