FormFactor Inc. FORM and Cascade Microtech Inc. CSCD recently announced the expiration of the waiting period under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976 related to their proposed merger. The companies now expect the transaction to be completed in mid-2016, provided other customary closing conditions are fulfilled.
In February, FormFactor announced its plans to take over Cascade Microtech, its competitor in the semiconductor testing space, in a cash-and-stock deal, worth nearly $352 million. Under the deal, Cascade shareholders will get $16 in cash and 0.6534 shares of FormFactor common stock for each share they own.
Based in Beaverton, OR, Cascade Microtech designs, develops and manufactures advanced wafer probing solutions for the electrical measurement and testing integrated circuits (ICs). Its production probe cards lower manufacturing costs of complex and high-speed ICs by identifying defects early in the process and testing multiple ICs concurrently.
The merged entity will gain a leading position in the semiconductor testing market by leveraging its resources to expand into newer markets. FormFactor’s management estimates that its addressable market opportunity will expand 40% to $1.4 billion from $1 billion by opening new engineering systems, thereby expanding the test and measurement businesses.
The combined entity is also likely to achieve significant cost and revenue synergies supported by the expanded product portfolio, a bigger customer base and better infrastructure. In fact, the merger is expected to deliver $10 million to $12 million in annualized cost synergies within 18 to 24 months post the deal closure. Also, the acquisition is expected to be immediately accretive to its free cash flow and earnings per share.
FormFactor is an original equipment manufacturer (OEM) of wafer probe cards used by semiconductor makers to test ICs. In fourth-quarter 2015, the company reported strong results, with both the top line and the bottom line exceeding the respective Zacks Consensus Estimate. Revenues of $71.8 million were up 9% sequentially and 0.7% year over year. All the three segments — System on chip (SoC), DRAM and Flash — improved from the third quarter. Region-wise, Asia Pacific, North America and Japan witnessed sequential improvement.
FormFactor sports a Zacks Rank #1 (Strong Buy).
A couple of well-ranked stocks in the technology sector are Exar Corp. EXAR and Alpha & Omega Semiconductor, Ltd. AOSL. While Exar carries the same Zacks Rank as FormFactor, Alpha & Omega has a Zacks Rank #2 (Buy).
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