NEW YORK (CNNfn) - Applied Materials said Wednesday that it would buy Etec Systems in a stock deal valued at roughly $1.7 billion.|
Applied Materials (AMAT), the world's largest supplier of equipment used in semiconductor wafer manufacturing, said it would exchange .649 shares of its stock for each share of Etec's (ETEC) stock.
Based on Wednesday's closing price of 127-1/6, Applied Materials would be paying roughly 82-5/16 for each of Etec's 21.6 million outstanding shares, which is a more than 60 percent premium over Etec's closing price of 49-7/8.
"They are paying more than $80 for a $50 stock, so clearly Etec is getting a good deal here," said Milind Bedekar, an analyst at Salomon Smith Barney in San Francisco.
Etec, which is headquartered in Hayward, Calif., develops, manufactures and markets the equipment that produces high precision photomasks, which is the term for the equipment that is used to print the complex circuit patterns onto semiconductor wafers.
The average selling prices for such equipment range between $10 million and $12 million per unit, which has proven difficult for the company in the past, according to Eric Ross, an analyst at Thomas Weisel Partners.
Because of the extraordinarily high average selling prices, if the company misses its sales by even one unit, it almost certainly misses its quarterly earnings targets as well, prompting investors to punish the stock, Ross said.
By being taken into Applied Material's fold, the company will be better able to absorb the quarter-to-quarter bumps, Ross said.
Applied Materials posted fiscal 1999 sales of roughly $4.9 billion, while Etec toted up revenue of $240 million for the year.
For its part, Applied Materials adds a key element to its portfolio of products and services. Etec currently garners more than 80 percent of the global market share for mask-pattern generation equipment.
"Etec reaps the benefit of substantially more resources," Ross said.
The acquisition, which will be accounted for as a pooling-of-interests, is still subject to shareholder and regulatory approval.