UPDATE 4-KLA-Tencor set to buy Belgium's ICOS for $467 mln

Thu Feb 21, 2008 1:53pm EST

(Recasts, adds details, KLA stock price)

By Philip Blenkinsop and Duncan Martell

BRUSSELS/SAN FRANCISCO Feb 21 (Reuters) - KLA-Tencor Corp (KLAC.O), the microchip testing equipment maker, on Thursday agreed to buy Belgian peer ICOS Vision Systems Corp NV IVIS.BR for $467 million in cash, broadening its range of products to go after the fast-growing solar panel market.

ICOS makes visual inspection equipment for semiconductor packaging and also seeks to build a presence in control of wafers. It also provides inspection machines for solar cells and LED lighting. Shares of both companies rose on the news.

"Our two companies serve adjacent markets and offer complementary technologies," said KLA Chief Executive Rick Wallace, adding that the merger would allow KLA-Tencor to grow outside its primary chip fabrication market.

The combination would give KLA a far larger footprint in the chip packaging inspection business and boost its presence in fast-growing markets such as solar panels and LED lighting, broadening its revenue base.

Steve Babureck, analyst at Exane BNP Paribas in Paris, said the deal looked good for KLA-Tencor, both in terms of price -- given that ICOS shares hit a two-and-a-half year low last week -- and in terms of products.

"KLA-Tencor is the inspection leader in the front end, ICOS in the back end. It also gives them entry into green tech, with the LED and solar inspection sector," he said.

In pushing into solar technologies, KLA-Tencor would be following peers such as Applied Materials Inc (AMAT.O) and Tokyo Electron Ltd (8035.T). Solar energy-related stocks were high-flyers last year, but have dropped sharply in 2008 after a run-up in 2007 and amid the global equity sell-off early this year.

'A DONE DEAL'

Eric de Graaf, analyst at Petercam in Amsterdam, said the price was also fair for ICOS shareholders.

"It's a done deal ... It could take at least a year or two years to get to that level," he said.

The companies said in a joint statement that KLA-Tencor was offering 36.50 euros per ICOS share, a 35 percent premium over the Belgian company's closing price over the past 90 days.

ICOS shares, whose trading was temporarily suspended, soared 60 percent at 35.52 euros, returning to a level last seen in July 2007. Shares of KLA-Tencor rose $1.34, or 3.2 percent, to $43.50 on Nasdaq.

ICOS CEO Anton De Proft told a conference call that board members who held some 20 percent to 25 percent of the company had backed the offer. He said the combination would let ICOS grow faster in new initiatives already underway.

KLA-Tencor said the transaction would add to its earnings per share in the first year.

The companies said the net transaction was valued at 316.9 million euros, excluding shares ICOS itself holds and its cash.

The deal is expected to close in the second quarter of 2008, assuming 85 percent of ICOS's outstanding shares are tendered and it encounters no regulatory problems.

Since the vast majority of ICOS shares are floating, KLA-Tencor will need to woo a large number of individual shareholders rather than a group of key investors.

Separately on Thursday, ICOS announced fourth-quarter results broadly in line with expectations and said it would stop its share repurchase program in light of the takeover. ($1=.6785 Euro) (Reporting by Philip Blenkinsop; Editing by David Cowell/Jeffrey Benkoe)

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