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Cohu Makes Its Move to Buy Xcerra After China Blocked

CEO: Luis MĂĽller

Revenue: $352.7 million in 2017;

$282.1 million in 2016

Net income: $32.8 million in 2017; $3 million in 2016

No. of local employees: 282

Headquarters: Poway

Year afounded: 1947, as Kalbfell Lab

Stock symbol and exchange: COHU on Nasdaq

Company description: Maker of semiconductor test equipment

The leaders of Poway-based Cohu Inc. saw opportunity when U.S. regulators blocked a Chinese company from acquiring a competitor.

Cohu saw that competitor, Massachusetts-based Xcerra Corp., as a good addition to its own business.

Once the Massachusetts firm signed a termination agreement with Hubei Xinyan Equity Investment Partnership, executives from Cohu (Nasdaq: COHU) immediately and discreetly approached Xcerra (Nasdaq: XCRA) saying they would like to buy the company, according to securities filings.

Xcerra Buy

Xcerra’s board and management considered their options, did their due diligence, entered negotiations and ultimately accepted a $796 million offer to buy, which the two companies made public May 8.

Cohu is offering $9 per share in cash and 0.2109 Cohu shares for each share of Xcerra stock. The acquisition is expected to close before the end of the year. When it closes, Xcerra shareholders are expected to own roughly 30 percent of the combined company.

Thumbs Down By CFIUS

Xcerra announced it signed a termination agreement with Hubei Xinyan on Feb. 22, after the federal Committee on Foreign Investment in the United States (CFIUS) said it would not approve the Chinese company’s plan to buy Xcerra.

Similar stories played out in the San Diego market over the last 18 months. Broadcom Inc.’s (Nasdaq: AVGO) proposed acquisition of Qualcomm Inc. (Nasdaq: QCOM) also came under CFIUS scrutiny, and was ultimately ended by President Donald Trump in March.

One year earlier, San Diego-based Inseego Corp. (Nasdaq: INSG) tried to sell its Novatel Wireless hot spot business to a Hong Kong company, but could not get CFIUS approval for the deal.

Cohu executives could not be reached as they were occupied with a major trade show.

In slides prepared for an investor presentation, Cohu said it looks for acquisition opportunities in profitable, complementary markets, adding the Xcerra acquisition will diversify Cohu’s revenue base and increase its total addressable market to $5 billion.

Leadership

Cohu CEO Luis MĂĽller and Chief Financial Officer Jeffrey Jones are expected to keep their roles at the combined company, according to a securities filing from May. The new board will contain two directors from Xcerra and five directors from Cohu.

Full integration of the companies is expected to take 24 months, according to a Q&A document sent to Xcerra employees and filed with the Securities and Exchange Commission.

The East Coast and West Coast businesses have much in common. Both make equipment to test semiconductors as well as MEMS (short for microelectromechanical systems — that is, semiconductors with microscopic moving parts). The Xcerra deal would give Cohu more capabilities, such as the ability to test printed circuit boards.

If completed, the acquisition will bring Cohu’s 1,750 employees together with Xcerra’s 1,640. When viewed by revenue, the smaller company is planning to swallow the larger. Cohu had $367 million in revenue during the last 12 months while Xcerra’s revenue was $473 million in the same period, according to investor presentation materials.

To fund the acquisition, Cohu said it will use $179 million in cash from both companies’ balance sheets, as well as a seven-year, $350 million loan.

Approved By Both Boards

Both companies’ boards have approved the acquisition. As of July 10, the company had not received federal antitrust approval.

Xcerra won’t be Cohu’s first acquisition. In fact, Cohu bulked up recently with the January 2017 acquisition of Kita Manufacturing Co. Ltd., a Japanese maker of spring probe contacts used in electronics testing.

Cohu also bought Ismeca, a maker of electronics testing and inspection equipment based in Switzerland, in 2013. It bought Rasco, a German maker of semiconductor test handlers, in 2008.

Cohu sold its mobile microwave communications equipment business in 2015 after deciding it was no longer a strategic fit for the corporation.

In other news, Cohu introduced a new piece of test equipment at the Semicon West trade show in San Francisco July 10-12. Cohu’s infrared optical inspection module is able to detect micro-cracks and sub-surface defects on small integrated circuits known as WLCSPs (short for wafer-level chip scale packages).

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