NEW YORK, Sept. 28, 2016 /PRNewswire/ -- Breithorn Capital
Management ("Breithorn"), a private investment manager and long
term shareholder of Kulicke & Soffa Industries ("K&S" or
the "Company") (Nasdaq: KLIC) with beneficial ownership of
approximately 1.1% of the Company's outstanding common stock,
announced that it has delivered a letter to the Company's Board of
Directors.
In the letter, Breithorn highlights the Company's favorable
fundamental prospects, low valuation and substantial excess cash
balance, and expresses concerns with the Board's lack of urgency in
addressing poor historical stock performance. Breithorn believes
the Company should immediately hire advisors to evaluate strategic
alternatives for the business.
The full text of the letter follows:
28 September 2016
Garrett E. Pierce, Chairman
Kulicke and Soffa Industries, Inc.
23A Serangoon North Avenue 5, #01-01
K&S Corporate Headquarters
Singapore 554369
Dear Members of the Board:
As you know, Breithorn Capital Management ("Breithorn")
beneficially owns approximately 1.1% of the outstanding shares of
Kulicke & Soffa Industries, Inc. ("K&S" or the "Company").
Breithorn is a value-oriented investment manager with a long-term
investment horizon, and has been a shareholder of K&S since
April 2013.
As we outlined in our letter to you dated December 1, 2015 and in our presentation dated
October 27, 2015 (www.breithorn.com),
we believe that K&S is a very attractive business. Our view has
not changed. The Company maintains a dominant share of the market
for wire bonding equipment and continues to generate strong free
cash flow. This has enabled K&S to accumulate a net cash
balance of $499 million, or
$7.09 per share, as of the second
quarter. Excluding $75 million
of cash required for operations, K&S currently has excess cash
of $424 million, or $6.02 per share. The Company has reported
consecutive quarters of strong top and bottom line growth that has
exceeded consensus estimates. Moreover, we believe future prospects
for the business remain strong, with growing demand for both wire
bonding and advanced packaging equipment.
Despite positive fundamentals, the Company's stock continues to
trade at a deep discount to intrinsic value, in our opinion. We
estimate medium-term earnings power to be roughly $1.00 per share excluding any potential upside
from the nascent thermo-compression opportunity. After subtracting
$6.02 per share of excess cash from
the stock price of $12.59, K&S
trades at only 6.6x our normalized core earnings power estimate.
Given the high quality of the business, we believe fair value for
K&S stock is significantly higher than the current price.
K&S shares have also materially underperformed the Company's
"Stock Performance Peer Group" listed in the annual report. This
underperformance is even more dramatic when compared to BE
Semiconductor Industries N.V., which we believe to be the Company's
closest competitor.
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K&S Stock
Performance vs. Management's Selected Peer Group
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Market Cap
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Total Return (%)
(1)
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Company
Name
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Ticker
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($mm)
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YTD
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1 YR
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3 YR
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5 YR
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Kulicke & Soffa
Industries, Inc.
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KLIC
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885
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7.9
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37.6
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10.0
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52.8
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ASM Pacific
Technology Limited
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522-HK
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25,646
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5.3
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22.7
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-15.2
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-9.0
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BE Semiconductor
Industries N.V.
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BESI-NL
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1,193
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66.9
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121.5
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285.4
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726.5
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Brooks Automation,
Inc.
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BRKS
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923
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29.2
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29.5
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60.1
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104.0
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Cohu, Inc.
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COHU
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303
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-2.0
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23.6
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13.0
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27.3
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KLA-Tencor
Corporation
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KLAC
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10,764
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3.3
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48.6
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56.7
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155.7
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Lam Research
Corporation
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LRCX
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14,649
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17.8
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48.8
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85.1
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149.7
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Xcerra
Corporation
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XCRA
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316
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-1.8
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-1.2
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-11.1
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9.0
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Shinkawa
Ltd.
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6274-JP
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11,540
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5.9
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2.3
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-5.0
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65.9
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Teradyne,
Inc.
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TER
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4,261
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3.4
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23.7
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32.7
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91.7
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Ultratech,
Inc.
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UTEK
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623
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17.3
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44.9
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-24.4
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29.2
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Veeco Instruments
Inc.
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VECO
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781
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-5.7
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-5.0
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-46.4
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-32.1
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Mean
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12.7
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32.7
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39.2
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119.8
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KLIC
Underperformance
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-4.8
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4.9
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-29.2
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-67.0
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(1) Compounded
total return in local currency with dividends reinvested on
ex-dividend date
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Source: FactSet;
prices as of 9/27/2016
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In our opinion, the primary reason for this underperformance is
a pervasive fear that management will either squander the Company's
excess cash on poor acquisitions or indefinitely hoard it without
good reason. This fear persists because management and the Board
have made little progress deploying cash in an accretive fashion
for several years. The $98 million
acquisition of Assembléon Netherlands BV has delivered mixed
results, and the Company's significant R&D investment in
thermo-compression technology has yet to bear fruit.
Secondarily, we believe the stock's valuation is depressed due
to a lack of institutional sponsorship as a result of the Company's
relatively small market capitalization, limited research coverage,
and inadequate investor outreach by top management and the Board.
In addition, the Company's awkward corporate structure, with a U.S.
stock listing and operations in Singapore, appears to be limiting investor
interest.
The Company's shareholders have suffered subpar returns for
years and are losing their patience. We believe the Company's
management and the Board have not exhibited a sufficient sense of
urgency in addressing the stock's dramatic underperformance.
Perhaps this is because they have little incentive to do so given
their minimal equity ownership positions. We believe the
status quo is not acceptable. In order to address the
persistent undervaluation of the Company's stock, we urge the Board
to immediately hire advisors to explore strategic alternatives. We
believe this process should include the consideration of a sale of
the Company to a buyer with foreign operations not subject to
repatriation taxes, who can pay full value for the Company's cash.
Given the high quality and positive momentum of the business, we
believe a potential buyer could pay a healthy premium to today's
share price. In addition, a sale of the Company may be facilitated
by its current leadership void, as the Board has yet to appoint a
permanent CEO following the retirement of former CEO Bruno Guilmart on October
5, 2015.
We look forward to hearing back from management and the
Board.
Sincerely,
Breithorn Capital Management LLC
About Breithorn Capital Management LLC
Breithorn
Capital Management LLC is a privately-held, SEC-registered
investment advisor based in New
York. We employ a disciplined value investing approach
focused primarily on the U.S. equity market with the goal of
maximizing long-term capital appreciation.
Contact information:
Benner
Ulrich, Principal
Rolf Heitmeyer,
Principal
+1 212 487 4960
info@breithorn.com
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SOURCE Breithorn Capital Management