Newport buying Thermo Electron’s optical business
Irvine, CA—To create a leading photonics company with $400 million in annualized sales, Newport Corp. has agreed to purchase Thermo Electron Corp.’s Spectra-Physics for $300 mil-lion, subject to a post-closing net asset adjustment.
Irvine, CA— To create a leading photonics company with $400 million in annualized sales, Newport Corp. has agreed to purchase Thermo Electron Corp.’s Spectra-Physics for $300 mil-lion, subject to a post-closing net asset adjustment. Spectra-Physics makes up substantially all of Thermo Electron’s optical technologies business. The combined company will have more than 2,000 employees and 15 manufacturing plants in five countries.
The purchase price includes $200 million in cash, $50 million in Newport common stock, and a $50 million promissory note bearing 5% interest and payable in 2009. The transaction is subject to regulatory approval as well as other customary closing conditions. Closing is expected in July 2004.
'This unique combination brings together what we believe are the technology leader in lasers and the technology leader in photonics instrumentation, motion control and automation to create a photonics industry powerhouse. The combined company will become the premier global resource for customers who need to make, manage and measure light,' says Robert Deuster, Newport’s chairman and CEO. 'The new Newport will have an integrated technology mix that will allow us to better serve many of the world's fastest-growing markets.'
Because of its expected $400 million in yearly sales, the new firm will likely be immediately profitable, excluding transaction-related expenses. Newport has already identified significant op-portunities for product, sales and cost synergies. 'We expect this transaction to create many new and expanded opportunities for Newport in markets for photonics, biophotonics and nanotechnology,” adds Duester. “With a strong balance sheet and good cash generation potential, we believe that the company will be well positioned to realize the benefits of the combination.'
For the year that ended Dec. 31, 2003, Newport reported sales of $134.8 million. Its sales for the first quarter of 2004 (1Q04) totaled $42.4 million, an increase of approximately 27% compared with the $33.3 million recorded 1Q03. Spectra-Physics had sales of approximately $200 million in 2003 and its 1Q04 sales were up 16% to approximately $58 million versus approxi-mately $50 million in 1Q03.
'We are entering this combination with excellent marketplace momentum and a strong sense of optimism about the future,' says Deuster. 'We believe that the significant right-sizing actions taken by both companies during the industry recession of 2001-2003 will allow us to quickly lev-erage higher sales into increased profitability.'
For example, the acquisition will add more than 5,000 products sold by Spectra-Physics to the more than 10,000 products offered by Newport. In addition to greatly increasing Newport's range of products, the transaction is expected to provide Newport with better balance in its end markets. 'While we anticipate that our total sales to microelectronics customers, including semiconductor capital equipment customers, will almost double, the percentage of company sales to these markets will remain approximately one-third of our total sales,' adds Duester. 'At the same time, we expect that the percentage of our sales to life and health sciences markets will more than double, from less than 10% today to over 20% after the transaction is consummated, giving the company a broader base and more exposure to this important growth market.' Sales to research, industrial, fiber-optics, and other markets will remain a strong contributor to total sales, but will represent less than half of the total.
In addition, the combined company is expected to have better geographic reach, with sales in Europe and Asia each increasing to approximately 20% of total sales. As a percent of Newport's total sales in 2003, Europe represented 19% and Asia only 10%.
Newport adds that Robert Phillippy will be named to the newly created position of its president and COO. Phillippy is currently the vice president and general manager of U.S. operations for Newport's largest division, Industrial and Scientific Technologies. 'Bob has been a key leader at Newport for more than eight years. He is an industry veteran adept at integrating acquisitions and leading operational teams and he will have responsibility for all operations of the combined company. He is well-prepared for the challenges that await us as we work to enhance our presence in the photonics industry,' says Duester.
Deuster also plans to form an executive council comprised of senior Newport and Spectra-Physics executives. After the acquisition closes, this council will oversee integration activities, strategic direction, and overall leadership of the combined company. 'We recognize that integrating two excellent companies of this size will be challenging, but are confident that the talents of the combined leadership teams are equal to the task,” concludes Duester. “The new Newport will certainly benefit greatly from the additional experience and knowledge of the Spectra-Physics team.'
Control Engineering Daily News Desk
Jim Montague, news editor