Feb. 11, 2008 - The next chapter in semiconductor industry consolidation may be unfolding, with an unsolicited proposal from Sumitomo Heavy Industries to acquire Axcelis Technologies, its 50/50 partner in Japanese JV Sumitomo Eaton Nova (SEN). The ~$5.20/share proposal (total value of $544M) represents a 29% premium over Axcelis' stock price closing on Feb. 8.

In a publicly published letter addressed to Axcelis' board of directors (note the not-so-subtle URL), Sumitomo claimed that it has made several rebuffed M&A proposals over the past 18 months, but Axcelis has "continually responded 'now is not the right time,'" the company wrote. Meanwhile, the US firm's marketshare and financial performance "have declined dramatically" -- sales down 27% over the past two years and a net loss over the past two quarters, with cash reduced by more than half to ~$84M, nearly equal to debt ($80M). Further, notes Sumitomo, promises of growth from new products haven't materialized, citing Gartner data tracking Axcelis' falling marketshare in ion implant tools: total 36% in 1997 to <15% in 2006, and 34% to 9% in the high-current segment.

"Axcelis' ability to succeed as an independent company in the face of such a challenging market is in doubt," Sumitomo wrote. "We believe a combination of Axcelis, SHI and SEN would more effectively harness our collective resources, shared technology and global presence to compete more effectively worldwide over the long-term." The company added that the proposed combo "is a far better alternative for all parties, especially Axcelis' stockholders, than Axcelis continuing as a stand-alone business suffering a continual decline in market share."

An added twist to the deal is the promise of financial support from TPG (nee Texas Pacific Group), which Sumitomo says is a minority partner in the proposed deal. TPG is one of several private equity firms that have been prowling the semiconductor industry in the past couple of years, notably TPG Capital's involvement in the $1.4B buyout of Singapore test/assembly firm UTAC (United Test and Assembly Center Ltd.) last summer.

Axcelis execs fired back with their own statement, scolding Sumitomo for releasing the letter to the public, claiming it had received the proposal on Feb. 4 and promised to respond after consulting with advisors. The company also pointed out that the proposed price ($5.20/share) is ~10% below the stock's 12-mo average. Further, the board accused SHI of "recently [revealing] that it has ambitions for SEN that are not in the best long-term interests of Axcelis and its shareholders."

The past year has seen change in the implant market, with Applied Materials essentially announcing its exit, a move interpreted both as a decision to drop investments in a low-growth business, as well as a possible strategic transition into plasma doping technology. Analysts at the time indicated to WaferNEWS that fast-growing Varian Semi. Equip. Assoc. would probably benefit the most by AMAT's exit, more so than Axcelis or the SEN joint venture.