Israel’s Orbotech to Be Sold to KLA-Tencor in $3.4 Billion Deal

The acquisition will bring together two players in burgeoning market for semiconductors, printed circuit boards and flat screens

Orbotech headquarters in Yavne
Ilan Assayag

Orbotech, a maker of semiconductor-manufacturing equipment and one of Israel’s biggest high-tech companies, is being sold to the American firm KLA-Tencor in a $3.4 billion deal, the two companies said on Monday.

KLA-Tencor said it was offering shareholders $69.02 a share, comprised of $38.86 in cash and a quarter share of stock, representing a premium of about 15% over Orbotech’s $59.90 closing price in New York on Friday.

The news sent the shares of Orbotech, which is based in Yavneh, 7.2% higher at $64.19 early morning local time in New York. KLA‘s stock was down 2.9% at $117.01, even though the company also announced a plan to buy back $2 billion of shares within 12 to 18 months after the Orbotech deal closes.

The transaction will bring together two companies in the market for equipment that makes and inspects semiconductors, printed circuit boards and flat panel displays. The market has taken off in recent years in line with the surge in smartphone use and, more recently, the internet of things and smart cars.

Orbotech got an important boost in the market after it acquired the U.K. company SPTS in 2014 for about $370 million, expanding its product line from automated optical inspection systems to include equipment for the microelectronics industry. Orbotech shares had risen 3.7-fold since September 2015 through last Friday.

Buying Orbotech will give the KLA-Tencor, which is based in Milpitas, California, access to the fast-growing market for printed circuit boards and flat panel displays in a market worth about $2.5 billion annually.

“This combination will open new market opportunities for KLA-Tencor, and expands our portfolio serving the semiconductor industry,” said KLA-Tencor CEO Rick Wallace. “Our companies fit together exceptionally well in terms of people, processes, and technology.”

The acquisition comes less than two weeks after reports that a group of Orbotech’s biggest shareholders, led by Jacob Richter, the life sciences entrepreneur and founder of stent-maker Medinol, was seeking a buyer.

The group also includes his brother Yochai, 72, who is Orbotech’s active chairman and has a 2.1% stake, as well as the U.S. hedge fund Renaissance Technologies, with another 5.4%; Clal Insurance at 5%; and a group of Orbotech executives with a combined 8.7%. Richter holds 5.4%.

On Monday, Richter’s wife, Judith, was speaking at a conference sponsored by TheMarker when the announcement of the acquisition came. She and her husband’s shares are worth $170 million, but her response to the news was: “I’m still not thinking about how much money we’ll be making.”

Judith Richter said the couple planned to invest their profits to develop new startups in the life science sectors. “We have specific ideas, sister companies to Medinol, that make products for all aspects of the heart and the vascular system as well,” she said.

KLA-Tencor has long had manufacturing and other operations in Israel and signaled that it planned to keep Orbotech in the country after the acquisition is completed.

“KLA-Tencor has had a strong presence in Israel over the years, and this combination further expands our operations in this important global technology region,” Wallace said.

Prime Minister Benjamin Netanyahu expressed the same view. “I am glad to hear that the company, which employs 2,500 people, will continue to operate in Yavneh. More good news for the high-tech sector and the Israeli economy,” Netanyahu said in a tweet.

KLA-Tencor, which expects the deal to add immediately to its revenue growth model, non-GAAP earnings and free cash flow per share, intends to fund the cash portion of the deal with funding from the combined company’s balance sheet.