II-VI to Acquire EpiWorks and Anadigics for $110M

US-based semiconductor laser firm II-VI has signed agreements to acquire EpiWorks at approximately $43.0M and Anadigics at around $61.0M ( $0.66 per share) in cash.

II-VI, which is headquartered in Saxonburg, Pennsylvania, says the acquisition of these two businesses will expand its technology platforms and production capacity for semiconductor lasers with a scalable 6-inch epitaxial growth and wafer fabrication platform. These acquisitions will also further position the company to serve fast-growing markets addressed by VCSELs, expected to grow at greater than 20 percent a year.

Francis J. Kramer, chairman and CEO said: "VCSELs address the need for increasingly intelligent human-machine interfaces such as gesture recognition in consumer electronics products as well as the growing demand for short-reach high-speed optical connectivity in data centers worldwide.  Our engagement with key customers in these and other markets has been sufficiently compelling to lead us to believe that this investment is needed now."

EpiWorks, a compound semiconductor wafer company focused on GaAs and InP is located in Champaign, IL. It has 2015 revenue of approximately $14 million.  Its 25,000-square foot, Class 1000 cleanroom epi foundry will provide expansion of II-VI's product portfolio.  EpiWorks' expertise dovetails with II-VI's core competencies as an engineered materials company.

"Demand for high-performance semiconductor solutions used in communications, datacentre, cloud and advanced sensor applications continues to increase. EpiWorks has been adding capacity to address market growth and emerging photonics applications, however demand forecasts outpace our ability to add capacity organically. By merging with II-VI, EpiWorks has access to substantial expansion capital, a global footprint and sales support around the world.  This will allow us to rapidly deploy our technology to the market and increase our market penetration." said David Ahmari, who will remain responsible for EpiWorks' sales, marketing and technology.

 "Teaming with II-VI allows us to go beyond the typical epiwafer foundry model by offering not just scale, but a level of sophistication, flexibility and capability needed in our industry as it is scaling and evolving," he added.

"The combination of II-VI and EpiWorks creates a world class engineered semiconductor materials company. We are excited to join the II-VI family and push the envelope of performance in our industry. We have a creative, multi-year plan for capacity, new capabilities, and novel products that cover a wide range of industries and markets", said Quesnell Hartmann, CEO of EpiWorks, who will continue on as the general manager of the EpiWorks business unit. 
 
EpiWorks will operate as a separate, but wholly-owned division of II-VI, named "˜II-VI EpiWorks', and plans to expand production in Illinois. Access to MOCVD capacity at other II-VI sites also offers EpiWorks customers additional capacity, flexibility and redundancy.

Anadigics brings to II-VI a high volume foundry unmatched in the production of 6-inch GaAs wafers. The acquisition of this foundry adds capacity more quickly and economically than building it new. II-VI believes that controlling a scalable infrastructure is critical for extending the company's laser enterprise product portfolio technology and positioning II-VI as the world leader in VCSEL technology.  Anadigics had year to date (nine months) revenue of $46 million and net assets of approximately $28 million as of October 3, 2015.

The combined value of these acquisitions is $110 million in cash and both are expected to close within 60 days. On a non-GAAP basis, the company expects these transactions to be accretive to continuing operations beginning in the second half of calendar 2017.  For the quarters preceding that, the transaction is expected to be dilutive due to investment in the 6" platform.  The Company will provide an update on the financial expectations when the transactions close.

The EpiWorks transaction is subject to the approval of EpiWorks' shareholders.  The holders of shares representing 83 percent of the votes have signed support agreements to vote in favour of the acquisition.

For the Anadigics transaction, a tender offer for all outstanding common stock must begin within ten business days and remain open for at least 20 business days.  A majority of the outstanding shares of Anadigics must be tendered to complete the acquisition. One-time expenses of up to $10 million or $0.15/share may be incurred over the next four quarters to fully integrate core operations into the laser solutions segment. 

Following closing, II-VI says it aims to move rapidly to integrate key operations and reduce operating losses. It is financing the acquisitions from available cash and borrowings under its credit facility.

II-VI is updating its revenue and EPS guidance for the second fiscal quarter ended December 31, 2015.  The company expects revenue to be between $189-191M and EPS to range from $0.28-$0.30 including the extension of the R&D tax credit.  It further expects to continue its share repurchases after it reports the results of the quarter ended December 31, 2015.

II-VI is a vertically integrated manufacturing company that produces application-specific photonic and electronic materials and components for industrial, optical communications, military, life sciences, semiconductor equipment, and consumer markets.