Aixtron takeover by Veeco played down; non-direct competitor approach more likely – sector advisers
An acquisition of Germany's Aixtron [NASDAQ:AIXG] by Veeco [NASDAQ:VECO] of Plainview, NY, is highly unlikely due to potentially prohibitive antitrust risks and lack of rationale, sector bankers and a lawyer said.
A source familiar with the situation played down M&A talks between the two metal-organic chemical vapour deposition (MOCVD) specialists. Veeco declined to comment. Aixtron did not respond to requests for comment.
The MOCVD market for LEDs is highly concentrated, an antitrust lawyer specialising in high-technology transactions and a semiconductor sector banker said.
Aside from Aixtron and Veeco, well established players include Japan’s Jusung Electronics. Chinese players such as HC SemiTek are getting stronger, but an Aixtron/Veeco deal would still be ill-advised due to their dominance, the banker said.
The transaction would have ‘massive’ antitrust issues due to the large overlap in MOCVDs, the lawyer agreed. The companies may argue a wider market definition should be applied, such as smartphone screen components, but competition authorities would likely not find this convincing, the lawyer said.
A deal for Aixtron with a non-direct competitor which has a foothold in the deposition part of semiconductor manufacturing would bear fewer antitrust risks and make more sense, the first and a second banker said.
These include Applied Materials [NASDAQ:AMAT], Tokyo Electron [TYO:8035], and ASML Holding [AMS:ASML], the bankers said.
Chinese interest in Aixtron is also much more believable than an approach from Veeco, the bankers said. Companies involved in wafer fabrication - MOCVD is a technique used to place thin layers of atoms on semiconductor wafers - are considered targets by Chinese semiconductor companies, the bankers said.
A few years ago Aixtron was advised to look into a deal with ASML, Jusung Engineering, ULVAC Technologies, Riber, and Novelis (since acquired) among others, the first banker said.
Since then, Aixtron’s share price has substantially declined, rendering it unable to make such acquisitions, this banker said. Veeco has also been outperforming it recently, the bankers said.
Veeco’s existing capacity to take business from Aixtron means there may be little rationale for a deal on the US-company’s side, the bankers said. Veeco could wait for Aixtron to decline further but equally it could want to eliminate one competitor more quickly, so the rationale cannot be completely dismissed, the second banker added.
Aixtron cut its sales forecast in October due to a Chinese customer, San’an Optoelectronics, substantially reducing its order.
A weak LED equipment market (combined with over-supply from China) and running the company on a high cost base has contributed to share price erosion, an Aixtron analyst said. It is vulnerable to an approach, the bankers said.
Shares in Aixtron have fallen from around EUR 7.3 in November to EUR 4.57 today. It was trading as high as EUR 12.30 in 2014.
The company began exploring strategic options late last year, initially focusing more on a restructuring than a trade sale, the analyst said. It quickly became apparent to Aixtron that a restructuring would not be sufficient and so the focus has shifted, this analyst claimed.
Aixtron’s annual report 2015, published February 2016, said: “In view of the cost-cutting programs that have already been implemented, our discussions and evaluations in the 2015 fiscal year once again concentrated on the market environment and the market opportunities for the various Aixtron technology groups. In this context, we also explored possible M&A opportunities, particularly with a view to targeted improvement of market access.”