Sumitomo eyes Axcelis talks as board under fire

By Anupreeta Das

SAN FRANCISCO (Reuters) - Sumitomo Heavy Industries Ltd (6302.T) responded to signs of shareholder discontent at Axcelis Technologies Inc (ACLS.O) on Thursday by reiterating its interest in buying the U.S. semiconductor equipment maker.

Axcelis had said on Thursday that three of its board directors were re-elected but failed to get a majority of the votes cast, and a spokesman for the Japanese company then said it was willing to immediately start talks to negotiate a transaction. Axcelis shares rose as much as 6 percent.

Sterling Capital Management, which owns about 12 percent of Axcelis, had said in March it would withhold votes due to differences over how the Axcelis board views Sumitomo's offer.

Axcelis rejected a sweetened $616 million offer from Sumitomo (SHI) in March, saying it undervalued the company and failed to compensate it for the potential of new products.

Axcelis, based in Beverly, Massachusetts, north of Boston, makes ion implantation equipment used in manufacturing semiconductors; Sumitomo makes heavy machinery.

"Axcelis has clearly communicated its willingness to enter into confidential discussions with SHI to explore whether we could reach a mutually beneficial transaction to optimize return to our shareholders," said Axcelis spokeswoman Andrea Calise.

But so far, the two sides have been unable to reach a non-disclosure agreement because Sumitomo has been unwilling to keep any discussions confidential, she added.

Sumitomo, whose bid is backed by private equity firm TPG TPG.UL, has said the conditions, which include stopping public statements and discussions with shareholders about the talks, would make it tough to pursue good-faith negotiations.

Under Axcelis corporate governance policies, the re-elected directors will have to offer their resignation because they failed to get more than 50 percent of the votes. Sumitomo declined to comment on the outcome of the election.

"We believe that that these results were impacted by the recommendation by Institutional Shareholder Services (ISS) that stockholders withhold their votes for the election of the director nominees," Axcelis said in a letter to shareholders.

Riskmetrics, which was previously known as ISS, and Glass Lewis, both influential proxy advisers, recommended last month that Axcelis shareholders withhold votes to oppose election of the three directors.

Riskmetrics urged shareholders to withhold votes, saying Axcelis failed to recommend a proposal to declassify the board. Glass Lewis said Axcelis had not given shareholders an opportunity to weigh in on the Sumitomo offer.

Some Axcelis shareholders, including Sterling, have indicated they believe Sumitomo's $6-a-share bid is not enough, but that it should not prevent the two from holding talks.

Axcelis shares closed on Thursday up 4.8 percent at $5.66 on the Nasdaq.

(Additional reporting by Paritosh Bansal in New York; Editing by Braden Reddall)