Oct 18 - The announcement this week by ASML of its plan to
acquire Cymer Inc. has industrial logic and limited downside credit risk, says
Although the acquisition is a departure from ASML's outsourced approach to its
supply chain, ASML accounted for 35% of Cymer's 2011 revenue and the two
companies already work very closely together. In addition, Cymer's revenue
streams are increasingly weighted toward the Netherlands-based litho
manufacturer and ASML has a leading position in the design of leading-edge
The acquisition should therefore allow for R&D synergies and further
collaboration within the two companies' overlapping supply chain. ASML expects a
significant increase in gross margins in the next three to four years, and that
the deal will be positive for earnings in year two.
ASML's co-investments with Intel, Samsung and TSMC in extreme ultraviolet
(EUV) development, along with the Cymer acquisition, suggest a degree of vertical
integration among some key industry players. ASML is taking a central position.
Risks remain of course - one of Cymer's competitors could prove more advanced in
the development of EUV. But in light of the links that already exist between the
two companies, this seems unlikely.
The deal structure allows for most of the EUR1.95bn cost to be paid for in ASML
shares (around 9% of the existing equity base) with the cash part about USD620m
(EUR475m). The equity weighting underlines the strategic nature of the deal.
In light of ASML's reported gross cash of EUR3.2bn at Q312 - pro forma for the
co-investment proceeds received so far that will be returned to shareholders -
we do not expect the cash element to affect ASML's healthy liquidity. We expect
the deal to close in 2013, subject to Cymer shareholder approval and regulatory
clearance. We rate ASML ('BBB'/Stable).