Tuesday, November 17, 2009

5 hours after the buyout, the lawsuits begin...(AMAT, SMTL)

This morning, Applied Materials(AMAT) announced that they'd agreed to purchase Semitool (SMTL) for about $360million, or $11 in cash per share. SMTL shares are up 30% on the news.

From the release:

The acquisition makes Applied the equipment leader in two fast-growing segments: advanced packaging and the memory industry’s conversion to copper. The combination enables Applied to serve its customers with a broader range of products and expands the company’s reach to a new set of customers in the semiconductor packaging industry.

“The semiconductor industry recovery is being fueled by global demand for mobile devices such as smart phones, notebook PCs and portable media players for music, gaming and books,” said Mike Splinter, chairman and CEO of Applied Materials. “With this acquisition, Applied will help the world’s leading chip makers create ever-smaller and more powerful devices.”

This deal works out to 32times this year's earnings, and 15times 2010 estimates. Profits are EXPLODING at Semitool, leading one to wonder why they're selling so low. The selling price is about 1.5times sales, versus AMAT's own P/S multiple over 3.

Thus the lawsuit:

NEW YORK--(BUSINESS WIRE)--Levi & Korsinsky is investigating the Board of Directors of Semitool, Inc. (“Semitool” or the “Company”) (NasdaqGS: SMTL - News) for possible breaches of fiduciary duty and other violations of state law in connection with their attempt to sell the Company to Applied Materials, Inc. (NasdaqGS: AMAT - News). Under the terms of the transaction, Semitool shareholders will receive $11.00 in cash for each share of Semitool they own for a total transaction value of approximately $364 million.

The investigation concerns whether the Semitool Board of Directors breached their fiduciary duties to Semitool shareholders given that (i) the offer price is only a 13% premium over the $9.73 price that Semitool shares traded at as recently as October 12, 2009; (ii) analysts set a mean price target of $12.00 for Semitool shares; and (iii) directors and executive officers of Semitool holding about 32% of the Company's outstanding common stock have agreed to support the deal.

These are the ambulance-chasers of the securities industry. They propose lawsuits all over the place, and a few become big hits on occasional settlements. This will likely go nowhere, even though the points have merit.

The most likely reason for the sale to happen at such an attractive price is the large stake held by Semitool management, which is approximately 32% according to the release. These folks have been at the helm for a while, and likely wanted to see a "liquidity event." Such is the risk you run when management holds a large stake in the company.

Copyright 2009 AlphaNinja

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