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KLA-Tencor to Buy Orbotech, Announces $2B Buyback Program
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KLA-Tencor Corporation (KLAC - Free Report) recently announced that it has agreed to acquire Israel-based circuit board company Orbotech Ltd. .
The deal is valued at approximately $3.4 billion or $69.02 per share through a combination of cash and stock. The acquisition is expected to close before the end of this year. The deal is subject to regulatory approval, Orbotech’s shareholders and the satisfaction of other customary closing conditions.
In addition, KLA-Tencor announced a share repurchase authorization worth $2 billion. The program is expected to be completed within 12-18 months following the close of this transaction.
KLA will fund the acquisition and stock buyback with cash on hand and proceeds from $1 billion sale in new long-term debt. Post acquisition, Orbotech will continue to operate as a standalone business of KLA-Tencor, based in Israel.
Coming to the share price, KLA’s shares have returned 24.4% in a year’s time, substantially underperforming the 59% rally of the industry it belongs to.
Deal Rationale
Orbotech Ltd. is an Israeli firm that develops yield management and process-enabling solutions for electronic products. The company’s systems are used in the manufacturing of printed circuit boards, chip devices, flat panel displays, packaging and other semiconductor manufacturing areas.
The deal is in sync with the company’s strategy to strengthen its business by expanding into adjacent markets. The merger of these two companies will create an equipment powerhouse with a huge range of products, services and solutions, customer breadth and scale. The deal will allow KLA to diversify its revenue base. The chip maker will now get an access to the fast-growing market for printed circuit boards and flat panel displays, worth $2.5 billion annually.
Talking about financial benefits, the deal will be immediately accretive to KLA’s revenues, adjusted earnings and free cash flow. In addition, the companies expect to realize $50 million in cost synergies within two years following the closing of the deal.
Conclusion
KLA-Tencor offers complete yield-management solutions including hardware, software and services that help improve the output, and reduce overall production costs.Cost reduction is of primary importance today, as increasing competition across all growing end markets leads to demand for lower-cost components. Since yield-management solutions improve manufacturing costs, demand for these products remains strong at any point in the business cycle.
We believe, Orbotech’s new products, services and solutions will diversify KLA’s revenue base and drive its long-term growth.
KLA’s President and CEO, Rick Wallace, said "This combination will open new market opportunities for KLA-Tencor, and expands our portfolio serving the semiconductor industry. Our companies fit together exceptionally well in terms of people, processes, and technology.”
Long-term earnings per share growth rate for PetMed and Brady Corporation is projected to be 10% and 7.5%, respectively.
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It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
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KLA-Tencor to Buy Orbotech, Announces $2B Buyback Program
KLA-Tencor Corporation (KLAC - Free Report) recently announced that it has agreed to acquire Israel-based circuit board company Orbotech Ltd. .
The deal is valued at approximately $3.4 billion or $69.02 per share through a combination of cash and stock. The acquisition is expected to close before the end of this year. The deal is subject to regulatory approval, Orbotech’s shareholders and the satisfaction of other customary closing conditions.
In addition, KLA-Tencor announced a share repurchase authorization worth $2 billion. The program is expected to be completed within 12-18 months following the close of this transaction.
KLA will fund the acquisition and stock buyback with cash on hand and proceeds from $1 billion sale in new long-term debt. Post acquisition, Orbotech will continue to operate as a standalone business of KLA-Tencor, based in Israel.
Coming to the share price, KLA’s shares have returned 24.4% in a year’s time, substantially underperforming the 59% rally of the industry it belongs to.
Deal Rationale
Orbotech Ltd. is an Israeli firm that develops yield management and process-enabling solutions for electronic products. The company’s systems are used in the manufacturing of printed circuit boards, chip devices, flat panel displays, packaging and other semiconductor manufacturing areas.
The deal is in sync with the company’s strategy to strengthen its business by expanding into adjacent markets. The merger of these two companies will create an equipment powerhouse with a huge range of products, services and solutions, customer breadth and scale. The deal will allow KLA to diversify its revenue base. The chip maker will now get an access to the fast-growing market for printed circuit boards and flat panel displays, worth $2.5 billion annually.
Talking about financial benefits, the deal will be immediately accretive to KLA’s revenues, adjusted earnings and free cash flow. In addition, the companies expect to realize $50 million in cost synergies within two years following the closing of the deal.
Conclusion
KLA-Tencor offers complete yield-management solutions including hardware, software and services that help improve the output, and reduce overall production costs.Cost reduction is of primary importance today, as increasing competition across all growing end markets leads to demand for lower-cost components. Since yield-management solutions improve manufacturing costs, demand for these products remains strong at any point in the business cycle.
We believe, Orbotech’s new products, services and solutions will diversify KLA’s revenue base and drive its long-term growth.
KLA’s President and CEO, Rick Wallace, said "This combination will open new market opportunities for KLA-Tencor, and expands our portfolio serving the semiconductor industry. Our companies fit together exceptionally well in terms of people, processes, and technology.”
KLA-Tencor Corporation Price and Consensus
KLA-Tencor Corporation Price and Consensus | KLA-Tencor Corporation Quote
Zacks Rank & Stocks to Consider
KLA-Tencor has a Zacks Rank #3 (Hold).
A few better-ranked stocks in the technology sector are PetMed Express (PETS - Free Report) and Brady Corporation (BRC - Free Report) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Long-term earnings per share growth rate for PetMed and Brady Corporation is projected to be 10% and 7.5%, respectively.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>