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4 August 2008


K&S to acquire Orthodyne Electronics and divest Wire Business Unit

Chip assembly equipment and packaging materials supplier Kulicke & Soffa Industries Inc of Fort Washington, PA, USA has agreed to acquire privately held Orthodyne Electronics Corp of Irvine, CA, USA (a supplier of ultrasonic wedge bonders and wedges for the power management and hybrid module markets) and to divest the K&S wire business unit to precious metals and technology group W.C. Heraeus GmbH (whose Contact Materials Division already manufactures bonding wire).

Orthodyne’s focus on the fast-growing power management market has delivered a double-digit compound annual revenue growth rate over the last five years, resulting in 2007 revenues of $110m. Its executive team, led by Gregg Kelly, will be retained, as will all 280 staff.

K&S will fund the acquisition with about 7.1 million shares of its common stock plus $80m in cash. However, if the transaction is not consummated by 31 October, then the purchase price will be about 19.6 million shares and no cash. The deal includes possible earn-out consideration up to a further $40m in cash if certain financial objectives are met by Orthodyne over the next three years. The closing of the transaction (expected within 60 days) is subject to certain working capital adjustments and closing conditions, including regulatory approvals.

“The acquisition of Orthodyne is in line with our stated strategy, and positions K&S to capitalize on our strengths in equipment manufacturing and further cement our position as the leading supplier of interconnect solutions,” says chairman and CEO Scott Kulicke. “Orthodyne is a fast-growing, profitable market leader and provides us with deeper penetration into the discrete side of the semiconductor market, particularly in the attractive power management and hybrid module markets.”

Heraeus will pay $155m for K&S’ wire business unit, subject to certain working capital adjustments. K&S and Heraeus say that they will also enter into a strategic technical collaboration agreement that provides reciprocal access to R&D expertise to exploit the technical synergies that come from approaching the wire bond process as a system involving the bonder, the tools and the wire. The closing of the transaction (expected within 60 days) is subject to certain closing conditions, including regulatory approvals.

“The wire business is one we believe strongly in, especially with exciting new wire products such as MaxSoft,” says Kulicke. “It is a very healthy business, with excellent customer relationships, and it will be a very solid asset for Heraeus. However, the working capital requirements of this business have become significant and, as a result, no longer make financial sense for us,” he adds. “Heraeus is ideally positioned to support the continued growth and exploit the advanced wire products we have developed in this business by leveraging its significantly larger balance sheet. The wire business fits very well into the core competences of Heraeus, which deal with precious metals and all related services such as refining and trading worldwide,” Kulicke considers.

“One of the key considerations in selecting a buyer from what was a robust bidding process was the ability to develop a long-term strategic alliance with a partner we knew well and respected,” he concludes. The technology alliance formed with Heraeus should allow K&S to exploit technical synergies between the two businesses, Kulicke reckons.

“W. C. Heraeus intends to continue building on its market position and strengthen its presence in Asia and North America,” says Dr Peter Kohler, managing director of W. C. Heraeus (the largest business segment of the Heraeus Group). “The acquisition of the K&S wire business unit and its production facilities in Singapore and Switzerland will strengthen our market position, especially in Asia, which is the focal point of the world’s semiconductor industry and a strategically important site in close proximity to customers,” he comments.

Considering K&S’ fiscal 2007 results both as-reported and theoretically with Orthodyne and without the wire business, t he transactions would have significantly improved gross margin, from 25.8% on actual sales of $700m to 45.9% on hypothetical sales of $481m, according to K&S’ chief financial officer Maurice Carson. “Orthodyne is a profitable and growing business. Additionally, the divestiture of our wire business would have significantly reduced the working capital needs of the company and improved cash flow,” he says.

“Coupled with last year's acquisition of Alphasem, K&S will posses a core competency across a full suite of interconnect technologies for a variety of micro-electronic applications,” concludes Kulicke. “K&S will also serve a larger total available market for back-end assembly equipment, providing more growth opportunities as the industry's cycle begins to turn up in the future.”

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