The board of Axcelis Technologies, the Beverly, MA-based maker of specialized semiconductor manufacturing equipment, continued evasive maneuvers today in its struggle to avoid a takeover by Japanese conglomerate Sumitomo Heavy Industries. The board unanimously rejected Sumitomo’s increased bid of $6.00 per share—up from $5.20 per share in its original, unsolicited bid in early February—as insufficient. Repeating language from the company’s rejection of the first Sumitomo bid, the Axcelis board “determined the proposal undervalues Axcelis and is not in the best interests of Axcelis and its shareholders,” according to an announcement today.
The two companies have a long and contentious history together, marked by recent disagreement over the direction of a jointly owned subsidiary, Tokyo-based SEN Corporation. Originally called Sumitomo Eaton Nova Corporation, SEN was set up in 1983 by Sumitomo and U.S. industrial parts manufacturer Eaton to make ion implanters for semiconductor fabrication lines. In 2000, Eaton spun off Axcelis as a separate company, and Axcelis inherited Eaton’s 50-percent ownership stake in the joint venture. SEN recently launched a single-wafer implantation tool similar to Axcelis’s own equipment; Axcelis and Sumitomo have been locked in arbitration proceedings in Japan over royalties.
Analysts say that both Axcelis and SEN misjudged demand for single-wafer (as opposed to batch) ion-implantation tools, and have thus lost market share to Gloucester, MA, rival Varian Semiconductor Equipment Associates. Axcelis has also experienced delays bringing its newest ion implantation tool, Optima HD, to market.
On February 11 Sumitomo and private equity firm Texas Pacific Group (TPG) made public an unsolicited bid of $544 million or $5.20 per share for Axcelis, which it said it had conveyed to Axcelis privately a week earlier. Within hours, Axcelis issued a response blasting Sumitomo for going public with the news of the bid before Axcelis’s board had completed discussions and saying that Sumitomo’s bid, which was 10 percent below the average closing price over the preceding 52 weeks, took advantage of Axcelis’s “currently depressed stock price.”
On February 25, Axcelis formally rejected Sumitomo’s initial bid. According to Reuters, Axcelis shareholder Sterling Capital Management reckoned the company’s value at $7.00 to $7.50 per share and had advised Axcelis to seek competing bids. Within days, other shareholders had filed class-action suits against Axcelis in Massachusetts and Delaware, claiming that the firm and its board had breached their fiduciary duty by failing to negotiate with Sumitomo.
On March 10, Sumitomo and TPG raised their bid by 15 percent to $615.6 million, or $6.00 per share. This bid represented an 11 percent premium over Axcelis’s closing price on March 7, and a 48.5 percent premium over its closing price on February 8 (before the news of the first bid)—but was still almost 30 percent below Axcelis’s 52-week high of $8.44, reached last May. Upon making this second bid, officials at Sumitomo and TPG said they did not plan to increase the bid again.
And now Axcelis has rejected that bid as well, saying that the company has the potential to recover market share and revenue as customer interest in the Optima HD line picks up. “While Axcelis and the Board recognize that Axcelis’ financial performance has been adversely affected by the delay of Optima HD products to market, among other factors, we are confident about the Company’s future,” said Stephen Hardis, lead director of Axcelis’s board, in the statement rejecting the bid. “Given our robust product pipeline and Axcelis’ customers’ favorable reaction to Optima HD products, the Board believes that Axcelis shareholders are in a strong position to benefit as Axcelis realizes its business potential.”
It is hard to discern in Axcelis’s announcements whether the company is seeking an even higher bid from Sumitomo, or simply wants to be left alone. It does seem, however, that Axcelis would like to pry SEN away from Sumitomo. “Axcelis management, with the agreement of the Board, has vigorously pursued numerous ways to enable Axcelis and SEN to become a single company through operational agreements or an equity transfer,” CEO Mary Puma said in today’s statement. “It has been clear for a number of years that substantial cost savings and significant synergies could be realized in such a transaction.”
Axcelis said that despite the rejection of Sumitomo’s latest bid, it “remains ready to meet again with SHI on a private basis to determine if there is a mutually beneficial transaction to resolve the joint venture relationship.” But it was not clear whether this offer extended to the idea of discussing an even higher buyout offer for Axcelis.
Meanwhile, Reuters reports that Axcelis has a shareholder rights plan and staggered board elections that would make any attempt at a hostile takeover by Sumitomo difficult.
