From Page One of Electronic News:October 13, 1997 Issue
ESI, Cognex In Bids To Buy AISI
By Chad Fasca
Ann Arbor, Mich.--Two of the bigger hands involved in providing machine vision systems became tangled in the same cookie jar last week as Portland, Ore.-based Electro Scientific Industries (ESI) revealed it had reached a deal to acquire Ann Arbor, Mich.-based Applied Intelligent Systems, Inc. (AISI). Only a few days later, Cognex Corp. of Natick. Mass., bellied up to the bar with its own, richer offer for AISI. The competing offers raise the question "What now?" for the privately-held AISI, which maintains a vigilant policy not to comment.
The knowns are that Electro Scientific Industries reached a signed agreement with Applied Intelligent Systems, Inc., which provides machine vision systems for automated process control and visual inspection, to acquire AISI for 1.4 million ESI shares in exchange for all the outstanding shares and options of AISI. The indicated value of the deal is about $85 million, at last week's market prices. ESI expected to close the acquisition in late October.
But ESI had not been alone in talking to AISI. According to CEO Robert Shillman, Cognex had some discussion with AISI prior to their deal with ESI. While AISI had been approached by both companies, the offer made public by Cognex came as a shock to ESI.
"We are a little bit surprised by the folks in the greater Boston area's announcement," said Joe Reinhart, VP of business development at ESI.
The announcement he referred to, made days after ESI revealed its agreement with AISI, was that Cognex would provide the privately-held AISI a deal worth approximately $105 million in an exchange of Cognex's shares of common stock for all the outstanding shares of AISI. The Cognex offer comes in approximately $20 million over that of ESI.
Over the past two years, Cognex has completed three acquisitions for the purpose of expanding its business with new technology, products, customers and applications. AISI's products are primarily used in the semiconductor and electronics industries to locate and inspect computer chips and printed circuit boards.
But while Cognex may have proposed, ESI had already put a fitted engagement ring on AISI's finger.
"We have a signed agreement to acquire Applied Intelligent Systems, AISI, and in fact are proceeding on the basis of that signed agreement with the various events that have to occur to close the transaction, (SEC and shareholder consent)... That whole process is under way at this point," said Mr. Reinhart of ESI.
That agreement has put Applied Intelligent Systems in a tricky situation, because the contract places restrictions on how AISI can approach competing bids.
For one thing, Mr. Reinhart said, "If they are given a definitive offer which they wish to pursue, they need to make ESI aware of their responding to the offer. We have not been told of that."
Not only does AISI have to make them aware, but according to Dr. Shillman, AISI has to fork over $3 million for the privilege of responding to another company.
"Well, it is very interesting. We are allowed to talk to them, but they are not allowed to talk to us (by virtue of the contract with ESI)," said Dr. Shillman.
After the first few times that Cognex sent AISI offers to be discussed, it became clear that AISI would be afraid to discuss any offer, Dr. Shillman said. Therefore, "given an understanding of their uncomfortable situation, we decided that we would send them a signed contract, so that they would not run the risk that the decision (to speak to Cognex) would not be fruitful," said Dr. Shillman. "It is not an offer they have to discuss. We sent them a signed contract."
Given the two competing offers, the next question is why. The answer is not as obvious. Dr. Shillman admits that AISI has been a "rather sleepy company" with a "checkered financial past." Not to mention, AISI is considerably smaller in revenue compared with Cognex, which he notes has relationships with approximately 150 OEMs. But as evidenced by the two offers, both companies prize Applied Intelligent Systems highly, although not necessarily for the same reasons. Dr. Shillman explained that what makes AISI attractive to Cognex may be very markedly different from why AISI interests ESI.
"I would only presume," he speculated, "that what makes them attractive to ESI is that they would want to get into our business."
As for Cognex itself, the deal isn't enticing to Cognex from the product synergy angle. "AISI would be duplicative in a way; we don't need the technology," said Dr. Shillman, who expressed confidence in Cognex's own products as "market leaders." Instead, Cognex sees double in AISI. Specifically, Cognex would like to add to its resume, foremost among other things, the two largest of AISI's customers, Kulicke & Soffa Industries and Universal Instruments, a division of Dover Technologies.
Where Applied Intelligent Systems stands or leans in all of this is purely speculation. The company responded to several calls with the statement that AISI follows a "no comment" policy.
From the Cognex perspective, the ball is in ESI's court. Dr. Shillman is pretty confident that the deal will shift their way. "It's a very high likelihood. The penalty is only $3 million, which we would absorb," he said.
"I would only presume that they are taking our offer and shopping it to ESI. As long as ESI comes up to our level, they won't talk to us. But, as soon as ESI doesn't, then they'll come talk to us," he said. Also taking the opportunity to address any concerns the financial industry might have about the benefit of the merger, Dr. Shillman added, "People often pay more than they appear to be worth. We believe that with AISI as our partner, Cognex could make a lot of money. Our earnings per share would be highly accretive," he said.
Meanwhile, from ESI's corner, mum is the word. "We are not in a position to make those speculations," said Mr. Reinhart. "Just because somebody made an offer doesn't mean you have to respond." <Picture> |
