K&S To Acquire Orthodyne Electronics; Divest Wire Business Unit to Heraeus

(August 1, 2008) FORT WASHINGTON PA — In a strategic move to further capitalize on its strengths as an equipment manufacturer, Kulicke & Soffa Industries announced that the company will acquire the assets of Orthodyne Electronics Corp, while also divesting its wire business unit to W.C. Heraeus GmbH. Orthodyne, a privately held based in Irvine, CA, supplies wedge bonders and wedges to the power management and hybrid module markets. Heraeus, whose core competencies focus on precious metals and related technologies, reportedly has the resources needed to support K&S’s wire business.

According to Maurice Carson, CFO, K&S, under the terms of the Orthodyne agreement, K&S will reportedly fund the acquisition of Orthodyne with approximately 7.1 M shares of K&S common stock, plus $80 M in cash. However, he said that if the transaction isn’t completed by October 31, 2008, the purchase price will be 19.6M shares and no cash.

With regard to the sale of the wire business, Carson disclosed that Heraeus will pay $155M in cash to K&S for these assets. Both agreements are subject to certain working capital adjustments and closing conditions, including regulatory approval.

Scott Kulicke, CEO, K&S, expressed the company’s excitement about both transactions. “They are examples of the steps we are taking to execute our goals of expanding our product portfolios, focusing on profitable growth and strengthening our balance sheet,” he said.

Acquiring Orthodyne
“Orthodyne isn’t very well known because it’s a privately owned company, but it has a great story,” explained Kulicke, referring to Orthodyne as the undisputed leader ultrasonic wedge bonding. The company brings a different market segment into the K&S portfolio, as it is focused on power semiconductors and power hybrid applications, both of which have forecasted growth rates of 10 and 13% respectively, according to IMS Research. Kulicke called these markets enablers of energy efficiency, which are likely to benefit from rising energy costs. By way of background information, Kulicke explained that Orthodyne designs and builds products at headquarters in Irvine and has 280 employees.

With such a strong position in the automotive sector, which has a slightly different cycle than the semiconductor market, Kulicke said he expects some of the semiconductor down cycle to be muted for K&S. “However, neither can withstand macro-effects,” he noted.
According to Kulicke, the acquisition of Orthodyne brings a a market leader, strong financial performer, a company with great brand recognition, and a focused team to K&S. The company’s executive team, led by Gregg Kelly, and all 280 employees will be retained.

“For the time being, we’re not looking at synergies (with regard to integrating Orthodyne into K&S)” noted Carson. “The business has been profitable. Our theory going forward is that there’s no reason to break their model.”

Hereaus’ Role
“We’ve been considering divesting the wire business for some time, and have had discussions with multiple parties. In the end, Hereaus made the most compelling offer during a robust bidding process, and we are confident that they will continue the success,” said Carson. Divesting the wire bond business frees up $100M that has been tied up in working capital due to the increased price of gold.

According to Carson, to support this effort, K&S and Hereaus have entered into a collaboration agreement that provides reciprocal access to research and technical expertise. Carson stated that the strategic alliance will allow both companies to exploit the technical synergies that come from approaching wire bond process as a system that includes the bonder, the tools, and the wire. “Wire has been profitable, but unfortunately increases in market share or even servicing industry growth would require considerable investment in working capital; something the company is uncomfortable in doing. Hereaus has resources and capital to realize the potential of our wire business.”

These two acquisitions, in conjunction with Alphasem acquisition last year, have strengthened position in the semiconductor equipment marketplace, said Kulicke.

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