Why Electro Scientific Industries Is Booming

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Electro Scientific Industries Inc. (NASDAQ: ESIO) shares practically doubled early on Tuesday after the company announced that it would be acquired by MKS Instruments Inc. (NASDAQ: MKSI). The firm also announced its fiscal second-quarter financial results, but the acquisition is really what’s moving the stock.

ESI announced the signing of a definitive agreement for MKS Instruments to acquire it for $30 per share in an all-cash transaction valued at roughly $1 billion. MKS intends to fund the transaction with cash on hand and a new, fully committed debt financing.

Note that the transaction is subject to customary closing conditions, including the approval of ESI’s shareholders and antitrust approvals. The deal is expected to close in the first quarter of calendar 2019.

The combined company is expected to have about $2.2 billion in pro forma annual revenue, based on the two companies’ calendar 2017 historical results. The transaction is expected to be accretive to MKS’s net earnings and free cash flow during the first 12 months post-closing. The combined company expects to realize $15 million in annualized cost synergies within 18 to 36 months.

Gerald Colella, MKS CEO, commented:

We believe the ESI acquisition will help us deliver on one of our long-term strategic objectives, which is to broaden our base as a technical solutions provider to additional customers and markets. We anticipate that the addition of ESI will strengthen our expertise in the photonics and optics markets, enabling us to develop systems that provide rich and robust solutions to meet the challenges of evolving technology needs. We expect to further progress our philosophy of “Solve Together. Succeed Together” by bringing the best technologies and high quality, reliable solutions in partnership with our customers, as we have demonstrated with the Newport acquisition.

Shares of Electro Scientific Industries were last seen trading up 86% at $27.75, in a 52-week range of $13.92 to $27.86. The stock has a consensus analyst price target of $32.75.

MKS Instruments traded up 2% at $70.74 a share, with a 52-week range of $67.83 to $128.28. The consensus price target is $109.00.