FormFactor (NASDAQ: FORM) and Cascade Microtech, Inc. (NASDAQ: CSCD) have announced that they have entered into a definitive agreement under which FormFactor will acquire all outstanding Cascade shares in a cash and stock transaction.
This combination creates 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 company is uniquely positioned to solve customers’ most difficult test challenges from engineering to production.
For each share of Cascade stock held, Cascade stockholders will be entitled to receive $16.00 in cash and 0.6534 of a share of FormFactor common stock, subject to the terms of the merger agreement. The transaction values Cascade at $21.13 per share, or $352 million in equity value based on the closing price of FormFactor’s stock on February 3, 2016, of $7.85.
The 2015 revenues of the combined company on a pro forma basis would be over $426 million. This transaction is expected to be immediately accretive to FormFactor’s earnings per share. The combined company expects to realize $10 million to $12 million in annualized cost synergies within 18 to 24 months of closing, and to accelerate the tax benefit of monetizing FormFactor’s approximately $300 million in net operating losses (NOLs).
Compelling Strategic and Financial Benefits Expected
- Market Expansion: Expand estimated addressable market from $1.0 billion to $1.4 billion by enabling entry into engineering systems business, providing a platform for future expansion in test, measurement and yield
- Scale and Diversification: Combined financial, R&D and manufacturing resources to serve larger customer base, with the combined companies’ Top 10 customers representing 62% of combined revenue (down from 83%)
- Cost Synergies: Annualized cost synergies equivalent to over 25% of combined companies’ non-GAAP operating income
- Tax Benefits: Enables accelerated monetization of FormFactor’s NOLs
- Capitalization Optimization: Deploying $120 million cash on hand and borrowing $150 million to drive additional EPS accretion
Transaction Terms and Approvals Required
Under the terms of the definitive agreement, FormFactor will acquire Cascade for approximately $352 million in aggregate consideration, consisting of $270 million in cash (including approximately $15 million to cash out vested equity awards) and approximately 10.4 million shares of FormFactor common stock, valued at $7.85 per share as of February 3, 2016. At closing, Cascade common stockholders are expected to own approximately 15% of the combined company.
FormFactor intends to fund the cash consideration for the transaction using approximately $120 million of cash on hand and approximately $150 million in debt financing. The transaction is not subject to a financing condition.
The transaction was unanimously approved by the boards of directors of both companies. The transaction is expected to close in mid-2016, pending the receipt of customary regulatory approvals. In addition, the transaction is subject to customary closing conditions, including the approval by Cascade’s stockholders of the merger.
