Electro Scientific Industries, Inc. (ESI; Portland, OR) and Zygo Corp. (Middlefield, CT) have entered into a definitive agreement under which the companies will merge in an all-stock transaction worth ~$173.5 million. The merger combines two photonics-based technology leaders, possessing complementary technologies and strong brand names—ESI as a global provider of photonic microengineering solutions, with Zygo as a provider of high-precision metrology solutions and optical systems.

The new company will be called ESI. The facilities of the company in Oregon and Connecticut are not scheduled to relocate at this time, according to company spokesman Brian Smith. As for layoffs, as typical when public companies merge, certain redundant positions are likely to be comsolidated, but no decisions about staff layoffs have been made—or they will be minimal, said Smith.

Revenues for the combined company for calendar year 2007 were ~$458 million. This combination creates new growth opportunities, increases the scale of the combined companies, and mitigates the economic ups and downs of business cycles through market-segment diversification.

Under the terms of the merger agreement, Zygo shareholders will receive 1.0233 shares of ESI stock for each share of Zygo stock, in a tax-free transaction. Based on yesterday's closing price of ESI stock, this represents a value of $10.30 per share of Zygo common stock. Upon closing, ESI will issue approximately 18.1 million shares on a diluted basis to complete the transaction, resulting in 40% Zygo shareholder ownership of the combined company.

The merger is subject to approval by both companies' stockholders, as well as the satisfaction of customary closing conditions and regulatory approvals. The board of directors at each company has unanimously approved the merger agreement. The companies expect the transaction to be completed in the first calendar quarter of 2009. Following closing of the transaction, the board of directors of ESI will be comprised initially of eleven members, three of whom will be designated by Zygo.

Contingent upon the close of the merger, the board of directors of ESI has approved an increase to the existing share repurchase program to $100 million of outstanding ESI common stock. The repurchases will be made at management's discretion in the open market in compliance with applicable securities laws and other legal requirements and are subject to market conditions, share price, and other factors. There is no fixed completion date for the repurchase program. The company has repurchased approximately $4.7 million against the existing authorization.

Mon Oct 20 13:57:00 CDT 2008