KLA-Tencor to Buy Orbotech in $3.4 Billion Deal

KLA-Tencor said Monday that it would pay $3.4 billion for Orbotech, bolstering its process control business with manufacturing tools for printed circuit boards, flat panel displays, packaging and chips. The equipment vendor estimates that the market served by Israel’s Orbotech is worth about $2.5 billion.

With the deal, the Milpitas, California-based company is shaking up the normally stolid market for semiconductor manufacturing equipment. KLA-Tencor sells process control equipment that can inspect for defects or abnormalities in the circuitry etched onto silicon wafers or films deposited onto flat panel displays.

The Orbotech deal strengthens its claim on fabrication equipment that burns circuitry onto chips, layers films onto displays, and bond metals together into circuit boards. And it comes months after SEMI forecast that worldwide sales of chip manufacturing equipment would grow 7.5 percent to $60.1 billion over the next year.

“This acquisition is consistent with our strategy to pursue sustained, profitable growth by expanding into adjacent markets,” said Rick Wallace, chief executive of KLA-Tencor, in a statement. “This combination will open new market opportunities for KLA-Tencor, and expands our portfolio serving the semiconductor industry.”

The deal comes almost two years after KLA-Tencor abandoned its proposed merger with Lam Research to avoid antitrust concerns raised by the Justice Department. The 2016 merger seemed like textbook vertical integration since KLA-Tencor’s inspection and metrology systems are increasingly vital to Lam’s process technology.

But the agency was alarmed by the possibility that the Fremont, California-based Lam could hurt competitors by making it harder for them to buy KLA-Tencor’s technology. The merger would have combined Lam’s now $8 billion business with KLA-Tencor, which generated $3.5 billion in revenue last year, up from about $3 billion in 2015.

KLA-Tencor is trying to again bridge the process control and process technology divide with its deal for Orbotech, which generated $901 million from equipment, installation and repair services last year, up from $806 million in 2016. KLA-Tencor said that it would save $50 million in expenses that the two companies would have sustained separately.

The transaction, which will see Orbotech remain based in Yavne, Israel, is expected to close by the end of the year. KLA-Tencor is paying $69.02 per share in the deal, with $38.86 in cash and the remainder in stock, and it plans to subtract the cash portion of the purchase price from the combined company’s balance sheet.