Cymer Up 50% on Buyout Deal with ASML (CYMI)

In an effort to get control of an advanced light-based technology used to produce smaller and more powerful chips, Dutch chip gear maker ASML (NASDAQ: ASML) agreed to buy Cymer (NASDAQ: CYMI) in a $2.55 billion cash-and-share deal.

The California-based Cymer is engaged in the development, manufacture and marketing of light sources for the manufacturers of photolithography tools in the semiconductor equipment industry. The company also supplies deep ultraviolet light sources, which are integrated into wafer steppers and scanners and then provided to chipmakers. Cymer specializes in photolithography and has virtually all of the lithography companies such as ASML, Canon (NYSE: CAJ), Nikon (OTC: NINOY) as its customers. ASML is a market-leading lithography company dependent on Cymer’s light beams to trace out the circuits of computer chips. ASML uses the extreme ultraviolet, or EUV, lithography technique to shrink the size of chips while increasing their capacity and speed for devices such as handsets and tablet computers. The light source is the technology edge of the EUV machine.

ASML and Cymer have collaborated closely for over a year. In order to avoid the possibility of a shift in margin towards the light source supplier and losing out to other competitors, the only option that was available to ASML is to own the technology by acquiring Cymer. Earlier in August, to finance the transition to the next generation of chip production equipment, ASML sold a 23% stake to its three biggest customers, Intel (NASDAQ: INTC), Samsung Electronics and Taiwan Semiconductor Manufacturing (NYSE: TSM).

As per the merger agreement, Cymer investors will get 1.15 ASML ordinary shares and $20 in cash for each Cymer share. Subject to approvals from regulators and Cymer shareholders, the deal is expected to close in the first half of 2013. The acquisition is expected to help ASML accelerate research in costly next-generation techniques to make semiconductors more powerful and smaller. Two years down the line, the transaction is expected to be accretive to ASML’s earnings. After merger, Cymer’s commercial operations will be managed as an independent division.

Starting December 2011, Cymer’s share price remained in the range of $45.00 to $50.00 until April 2012. Cymer reported a decrease in first-quarter 2012 net income to $21.5 million, or 68 cents per share, compared to $28.8 million, or 94 cents per share, a year ago. However, the company gave a better-than-expected guidance for the second quarter of fiscal 2012, resulting in a rally to $55.00 per share in the third week of July. Having beaten the Zacks consensus estimate for the second quarter, Cymer’s share price touched a high of $62.05 on August 17. Today’s merger news acted as a catalyst for a further rise in the share price. Cymer opened the day at $76.03 and corrected to $69.75 before closing the day at $71.45 per share, up $23.62 or 49.4% on a volume of 14 million shares.

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Published by Steve Hackney

Steve Hackney is a corporate finance professional with over 14 years of experience in cash management and investing. He earned a Bachelor of Science in Finance from Florida State University and holds a Certified Treasury Professional certification. Steve lives in Orlando, Florida with his family.