FormFactor Inc of Livermore, CA, USA (which provides wafer test technologies and expertise) has agreed to acquire Cascade Microtech Inc of Beaverton, OR, USA (which provides equipment enabling precision contact, electrical measurement and test of wafers, ICs, IC packages, circuit boards and modules as well as MEMS, 3D TSV and LED devices) in a cash and stock transaction.
For each share of Cascade stock held, stockholders will be entitled to receive $16 in cash and 0.6534 of a share of FormFactor common stock. The transaction values Cascade at $21.13 per share, or $352m in equity value, i.e. $270m in cash (including about $15m to cash out vested equity awards) plus about 10.4 million shares of FormFactor common stock, valued at $7.85 per share as of 3 February. At closing, Cascade common stockholders are expected to own about 15% of the combined firm. FormFactor intends to fund the cash consideration for the transaction using about $120m of cash on hand plus about $150m in debt financing.
The combination is said to create significant scale by combining complementary market leadership positions in semiconductor test, measurement and characterization applications. By leveraging combined global support and channel investments across a product line that spans from engineering to production test applications, the combined firm is reckoned to be uniquely positioned to solve the most difficult test challenges from engineering to production.
Revenue of the combined company on a pro forma basis for 2015 would be over $426m. The transaction is expected to be immediately accretive to FormFactor's non-GAAP earnings per share and free cash flow. The combined firm expects to realize $10-12m in annualized cost synergies within 18-24 months of closing, and to accelerate the tax benefit of monetizing FormFactor's approximately $300m in net operating losses (NOLs).
The combined company will use the name FormFactor Inc, and continue to trade on the Nasdaq Global Select Market under the symbol 'FORM'. FormFactor's president & CEO Mike Slessor will lead the combined company and FormFactor's chairman Tom St. Dennis will continue in that role. FormFactor expects to add one new board member from Cascade's existing board after closing of the transaction.
"The combination of our products, technologies, and addressable markets enables us to rapidly take the next step in achieving FormFactor's strategic growth objectives," says Slessor. "At the same time, we are able to realize significant financial synergies that the two companies would not be able to realize on their own," he adds. Annualized cost synergies are reckoned to be equivalent to over 25% of the combined companies' non-GAAP operating income.
"As a combined entity, FormFactor and Cascade will be the leader in the production probe card and engineering systems markets," says Cascade's president & CEO Mike Burger. "The combination of Cascade and FormFactor creates a larger, stronger company that will drive long-term value for our customers, employees, partners, and shareholders."
The merger is reckoned to expand the estimated addressable market from $1bn to $1.4bn by enabling entry into engineering systems business, providing a platform for future expansion in test, measurement and yield.
By combining financial, R&D and manufacturing resources to serve a larger, more diversified customer base, the combined companies' top 10 customers will representing 62% of combined revenue (down from 83%).
"With the rapid changes taking place in the semiconductor industry, we are confident that this combination will place us in a strong position to continue to profitably grow our capabilities to serve a global and diverse customer base, while substantially improving our operational and financial metrics," concludes Slessor.
Having been unanimously approved by both companies' boards of directors, the transaction is expected to close in mid-2016 (pending the receipt of customary regulatory approvals). It is also subject to customary closing conditions, including approval by Cascade's stockholders.
