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Dutch Firm to Buy Cymer for $2.55B

The acquisition of laser maker Cymer Inc. isn’t likely to result in consolidation in the short term but that is a possibility in the future, said several research analysts who cover the company.

Cymer agreed to be sold to its primary customer, ASML Holding NV of Holland, in a cash and stock transaction that totals about $2.55 billion.

Patrick Ho, an analyst with Stifel Nicholas & Co., said while the acquiring company may want to move some of the engineering and research parts of Cymer to Europe, such actions are still years away.

Ho noted that Cymer’s business in servicing its existing customers including Nikon needs to remain here.

In a joint press release on the sale, the companies said ASML intends to manage Cymer’s commercial operations as an independent division based in the United States, and will continue to deliver and service its equipment for all customers at an arm’s length basis.

Blake Miller, Cymer’s vice president of corporate marketing, said the company will continue developing its light source technologies here, and intends to grow its employment in San Diego “significantly,” or by “well north of 10 percent.” The firm has a total of 1,250 employees, including 900 locally.

From Customer to Owner

ASML is Cymer’s largest customer, and among a small group of companies that make lithography tools used in the manufacture of semiconductors. Cymer produces the laser light sources that are an integral part of lithography tools, which can cost upwards of $70 million and are about the size of a sedan.

The companies said they have been collaborating for more than a year on developing a more advanced lithography technology called extreme ultraviolet, and the merger is intended to accelerate this development.

The companies said the goal is to create microchips with more functions at a lower cost and that are more energy efficient, consistent with Moore’s Law. That is the adage that the number of transistors on circuit boards will double every two years.

“This is one of the most challenging trends that the semiconductor industry has ever seen,” said Mark Miller, senior research analyst with Noble Financial Capital Markets.

Miller said the companies are attempting to increase productivity in semiconductor technology. Today the average output is 18 wafers per hour, but the goal is to get to 60 wafers an hour or better.

The tools that ASML makes with Cymer’s laser equipment are used by the world’s largest chip makers including Intel, Samsung and Taiwan Semiconductor.

While there may be some consolidation of research functions in the future, Miller said he believed most of Cymer’s R&D should remain intact.

‘More Than a Fair Deal’

The price ASML is paying for Cymer surprised Miller, who noted the $2.5 billion was nine times Cymer’s gross profit last year, and a 70 percent markup on the company’s stock price before the deal was announced on Oct. 16.

The deal that was approved by both companies’ boards of directors calls for each share of Cymer to receive $20 in cash and 1.15 shares of ASML stock, which closed Oct. 17 at $50.08, down $3.51 from the prior day’s closing price.

In contrast, shares of Cymer, traded on Nasdaq under CYMI, closed at $71.45 on Oct. 17, up $23.62 or 49 percent from the prior day’s price. The stock had ranged from about $39 to $62 during the past year.

“This is more than a fair deal for (Cymer shareholders),” Ho said.

The transaction needs approval from Cymer’s shareholders and regulators here and in Europe, but is expected to close in the first half of 2013, the companies said.

ASML had nearly $8 billion in revenue last year, and through Sept. 30 of this year reported revenue of $4.8 billion. It has about 8,200 employees working at some 55 locations in 16 countries.

Laser Focus

The founders of Cymer are two students who met at UC San Diego, Bob Akins and Richard Sandstrom. The two initially joined a local defense contractor, which worked on, among other things, the proposed Strategic Defense Initiative, better known as the Star Wars defense system explored during the administration of President Ronald Reagan. The pair later formed Cymer in 1986, and focused upon developing laser technology used to make semiconductors.

Today, Cymer commands about 80 percent of the global market in specialized laser equipment geared to semiconductors, with the closest competitor being Japan’s Gigaphoton Inc.

Last year, Cymer had its best year ever from a financial perspective. It reported record sales of $594 million, up 11 percent from 2010, and net income of $80 million. The profit fell by about $10 million from 2010 due to greater investment into its research and development.

Last year, the company shipped 154 of its laser machines, each of which command prices well above $1 million. It also generates a big chunk of its revenue from servicing the equipment.

Through the first half of 2012, Cymer reported net income of $31 million on $300 million in revenue. That compared with net income of $56.5 million on revenue of $312 million for the first half of 2011.

Wall Street analysts estimated Cymer revenue for the third quarter will come in at about $149 million when the firm reports its financials Oct. 22.

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