02 Jun 2004
Newport agrees to buy Spectra-Physics for $300 million, creating one of the largest firms in the photonics industry.
Newport, US, has signed a definitive agreement to purchase Spectra-Physics, the optical technologies business of Thermo Electron Corporation, for $300 million.
The purchase price is comprised of $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 and is expected to close in July 2004.
“This is a truly transforming event. We believe that Newport will become the number one integrated photonics company in the world,” said Robert Deuster, Newport’s chairman and chief executive officer, at a conference call announcing the deal. “This unique combination brings together what we believe is the technology leader in lasers and the technology leader in photonics instrumentation, motion control and automation.”
At the same conference call, Charles Cargile, Newport’s chief financial officer said: “Once the dust settles, we expect sales to exceed $420 million in 2005 and gross margins to be in the 39-41% range. Looking forward, we believe the business can support $0.5 billion in annual sales, gross margins in excess of 40% and double-digit operating margins.”
Cargile is also optimisic that the new venture will be profitable immediately and that cash will continue to roll in. “We believe that the underlying cash generating potential of the new Newport will allow us to generate $40 million of free cash flow in 2005,” he said.
When the acquisition is complete, Newport will have more than 2 000 employees and 15 manufacturing plants in five countries. Deuster and Cargile both expect the combined company 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%.
The deal will also add over 5 000 products sold by Spectra-Physics to the more than 10 000 products offered by Newport. According to Deuster, there is very little overlap between the existing product offerings of both firms. “There is an 80% market overlap, in excess of 60% customer overlap and less than 5% product overlap between the two companies,” he said. “Integration is more of about infrastructure integration rather than a product rationalisation.”
Cost reductions also entered the discussion. Although Cargile was unable to give many details, he predicted that $5 - $10 million of cost reductions would be made in first full year after the transaction closes.
The two companies are now sorting out the management team that will coordinate the integration. Robert Phillippy, who is currently the vice president and general manager of the U.S. operations for Newport’s Industrial and Scientific Technologies Division, will move to become Newport’s president and chief operating officer. Deuster will retain the positions of chairman and chief executive officer. The majority of Spectra’s senior management will be moving over to Newport. According to Deuster, Guy Broadbent, the president of Spectra-Physics, will be staying at Thermo Electron.