II-VI Incorporated (Nasdaq: IIVI), a global leader in engineered
materials and optoelectronic components, today announced it has
made an offer to acquire Coherent, Inc. (Nasdaq: COHR), a global
laser technology leader, in a cash and stock transaction. Under the
terms of II-VI’s proposal made in a letter today (see below) to
Coherent’s Board of Directors, Coherent’s shareholders would
receive $130.00 in cash and 1.3055 II-VI common shares for each
Coherent share. Based on yesterday’s closing price of II-VI shares,
II-VI’s proposal is valued at $260.00 per Coherent share.
II-VI’s proposal represents a premium of 24.0% to the implied
value of Coherent’s merger agreement with Lumentum, based on
Lumentum’s closing share price yesterday, and a 9.8% premium to the
implied value of MKS Instruments’ acquisition proposal based on
MKS’ closing share price yesterday. Moreover, since II-VI has
substantially less product overlap with Coherent than either
Lumentum or MKS, II-VI believes there is greater certainty of
closing and with less potential impact to the combined value. II-VI
also expects to achieve estimated, combined run-rate synergies of
$200 million annually within 36 months. II-VI anticipates the
transaction to be accretive to non-GAAP EPS in the second year
following closing.
“The combination of II-VI and Coherent would create a uniquely
strategic global leader capable of delivering to our customers the
most attractive combination of photonic solutions, compound
semiconductors, as well as laser technology and systems. We believe
now is the right time to embark on this combination given
significant megatrends, with burgeoning applications in both
industrial and semiconductor capital equipment segments, including
those that enable consumer electronics and displays. Moreover,
II-VI expects to accelerate our growth in aerospace & defense,
life sciences, and laser additive manufacturing by utilizing our
compelling integrated solutions in lasers, optics, and electronics.
With expanded capabilities, we expect to collaborate even more
broadly across our customer base as their design-in leader of
choice. In addition, with our culture of innovation and strong
track record of merger integration, we expect to deliver
significant value to all stakeholders, including both companies’
shareholders, customers, employees, and business partners,” said
Dr. Vincent D. Mattera, Jr., Chief Executive Officer of II-VI.
Dr. Mattera continued, “We firmly believe our proposal is far
superior to Coherent’s existing merger agreement with Lumentum and
the recent acquisition proposal from MKS Instruments, as it is a
more compelling strategic fit and would provide Coherent’s
shareholders with meaningful upside opportunity. Moreover, we are
confident that our transaction would have greater certainty of
closing. In particular, we have not identified any competitive
overlaps between Coherent’s and II-VI’s respective businesses in
China. We believe we would have significant and diversified
opportunities to accelerate our growth through complementary
technology platforms, to increase our competitiveness by using
scale across the value chain, to demonstrate deeper market
intelligence and expertise, and to further diversify our businesses
and revenue streams.”
II-VI intends to fund the transaction with cash on hand and debt
financing led by J.P. Morgan Securities LLC. In addition, Bain
Capital has expressed strong interest in a potential equity
investment in the combined company. The execution of a definitive
merger agreement between Coherent and II-VI would be subject to
approval by each company’s Board of Directors and completion of the
transaction would be subject to customary closing conditions,
including receipt of required regulatory approvals and approval of
II-VI and Coherent shareholders.
Allen & Company LLC and J.P. Morgan Securities LLC are
acting as II-VI’s financial advisors, and Wachtell, Lipton, Rosen
& Katz and K&L Gates are serving as legal advisors.
Letter to Coherent’s Board of Directors
February 12, 2021
Board of DirectorsCoherent, Inc.5100 Patrick Henry Dr.Santa
Clara, CA 95054
Ladies and Gentlemen:
II-VI Incorporated (“II-VI”) is pleased to submit this proposal
(our “Proposal”) to acquire all of the issued and outstanding
capital stock of Coherent, Inc. (“Coherent”). II-VI has closely
followed the recent announcement by Coherent that it has entered
into a definitive agreement pursuant to which Lumentum Holdings
Inc. (“Lumentum”) will acquire Coherent (the “Current Merger
Agreement”), as well as Coherent’s subsequent announcement that it
has received an alternative acquisition proposal from MKS
Instruments, Inc. (“MKS”).
As you are aware, we were not afforded an opportunity to engage
in further discussions with you regarding our prior proposal of
December 20, 2020, but we remain keenly interested and enthusiastic
about the value-creation opportunity that this transaction
presents. We have spent considerable time and resources analyzing
Coherent, including its operations and financial performance and,
as a result of our review, we are convinced that a transaction
between II-VI and Coherent on the terms outlined in this letter is
clearly superior to a transaction with either Lumentum or MKS for
Coherent and its stockholders.
Proposed Transaction
Our Proposal offers Coherent stockholders $260.00 per share
based on current market prices, which implies a total enterprise
value of $6.5 billion. This represents:
- A 14.6% premium to Coherent’s closing share price as of
February 11, 2021;
- A 71.1% premium to Coherent’s closing share price on January
18, 2021 (the last day prior to Coherent’s announcement of its
definitive agreement with Lumentum);
- A 24.0% premium to the implied value of Lumentum’s current
offer based on Lumentum’s closing share price on February 11, 2021,
or $50.32 in additional value per share to Coherent’s stockholders
above the proposed Lumentum transaction; and
- A 9.8% premium to the implied value of MKS’ current offer based
on MKS’ closing share price on February 11, 2021, or $23.30 in
additional value per share to Coherent stockholders above the
proposed MKS transaction.
In our Proposal, Coherent stockholders would receive $130.00 in
cash and 1.3055 shares of II-VI common stock for each Coherent
share. Our Proposal offers Coherent stockholders a substantially
greater cash component than either the Lumentum or MKS proposal. In
addition, we are certain that the strategic combination of our two
companies, which is fully achievable from a regulatory point of
view, is far more compelling than either the Lumentum agreement or
the MKS proposal. We outline below the key strategic benefits of
our proposal.
We believe that, with focused diligence over a 10-day period, we
will be able to quickly finalize a transaction, assuming Coherent
cooperates with our limited requests and provides us an opportunity
to meet with senior management, and enter into a definitive
agreement with you.
As a result of the transaction, Coherent stockholders would own
approximately 23% of the combined company. We believe the stock
component of our proposed consideration provides Coherent’s
stockholders with meaningful upside opportunity through a
significant ownership stake in a global leader in photonic
solutions, compound semiconductors, and laser technology &
systems with the requisite scale, expertise and footprint to drive
accelerated innovation and significant value creation.
In addition, we anticipate the transaction to be accretive to
our non-GAAP earnings per share in the second year following
closing. We expect to achieve combined run-rate synergies of $200
million annually within 36 months. II-VI has a strong track record
of creating stockholder value through successfully integrating and
realizing cost synergies with acquired businesses, as evidenced by
our acquisition of Finisar in 2019.
Similarly, the operational focus and management strength of
II-VI, when combined with the financial and strategic benefits of
this Proposal, will create opportunities for growth that we believe
exceed what can be achieved through either a Coherent/Lumentum
combination or a Coherent/MKS combination.
For these reasons and the many others that we outline in this
letter, our Proposal constitutes a “Company Superior Proposal” as
defined in the Current Merger Agreement. As such, we seek to engage
with you immediately to further discuss our Proposal, answer any
questions you may have, conduct limited and swift due diligence and
agree on the final form of the merger agreement. We have already
retained all necessary financial and legal advisors to support our
Proposal and we are confident we can move expeditiously to a
definitive merger agreement. We look forward to the opportunity to
work with you and your advisors promptly to deliver to your
stockholders a transaction that is superior financially to the
Lumentum agreement, provides greater certainty of closing, and can
be completed promptly.
Business Rationale
We and our financial advisors would be glad to discuss the
rationale for the transaction further with Coherent and its Board
of Directors to ensure that you fully appreciate the benefits to
your stockholders of our proposal. In brief, a combination of II-VI
and Coherent would:
- Create a global leader of
greater scale to address irreversible
megatrends: Together, our companies would
become a global leader in photonic solutions, compound
semiconductors and laser technology & systems with over $4.1
billion in annual revenue, leveraging disruptive technology
platforms operating at scale to address a combined available market
of approximately $25 billion.
- Accelerate growth through
complementary technology platforms: Our
complementary lasers, optics and electronics technologies would
enable compelling solutions to accelerate growth in aerospace &
defense, life sciences, and laser additive manufacturing. In
addition, a highly complementary geographic presence will allow the
company to accelerate growth in key industrial markets in
Asia.
- Increase competitiveness by
using our combined scale across the entire value
chain: There are substantial
opportunities to utilize complementary scale at all levels of the
value chain and increase competitiveness in all laser technology
product lines, including in materials macro- and micro-processing,
display processing and instrumentation.
- Achieve sales synergies by
utilizing global services as a distribution
network: Coherent’s comprehensive
services network across a global footprint would act as a
distribution channel for a broad combined portfolio of components,
including II-VI’s aftermarket consumables, as well as a channel for
subsystems and systems service contracts in all end-markets that we
serve and grow into.
- Gain deeper market
intelligence from complementary business
models: By harnessing our combined
expertise and strong global presence at all levels of the value
chain – including engineered materials, components, systems and
services – we will gain deeper insights into laser end-markets that
will inform strategic roadmaps ahead of demand, influence
direction, and increase brand value.
- Accomplish sustained growth from increased
diversification of combined leadership: We would have
greater diversification of revenue by end market and geography,
providing greater immunity from short-term cycles and enabling
sustained strategic investments in new technology platforms to fuel
long-term growth.
Financing
We include with our Proposal a letter from J.P. Morgan
Securities LLC indicating their high degree of confidence in our
ability to obtain the entire amount of the necessary financing (see
Annex A). Prior to signing a definitive agreement with you, which
will not have any financing contingency, we will provide you with
an executed debt commitment letter.
In addition, Bain Capital has expressed strong interest in a
potential equity investment in the combined company. Bain Capital
is one of the largest private investment firms in the world and has
spent significant time and resources developing their understanding
of this industry. This work has in turn informed their confidence
in the strategic and financial merits of this combination, which
they believe represents a compelling investment opportunity.
Management and Employees
We have tremendous respect for Coherent’s existing management
team and its many talented employees, which are a key tenet of our
strategic rationale for this transaction. We would appreciate the
opportunity to discuss the most appropriate post-closing management
structure that will enable II-VI to benefit from the talent and
expertise of the Coherent team in the integration and future growth
of the combined businesses.
Our proposal includes the addition of two members of your Board
to the II-VI Board upon closing the transaction.
Approvals and Conditions
Our Board of Directors has unanimously approved this
Proposal.
We recognize that certainty of closing a transaction is of
paramount importance to Coherent’s Board of Directors as it
evaluates our Proposal. We and our advisors have spent considerable
time evaluating the required competition approvals, and we are
highly confident that we will obtain these approvals on a timely
basis. We would be pleased to make our counsel available to your
competition counsel to further discuss these matters and to confirm
whether any other approvals are required. Given our success in
prior acquisitions, we are confident that the required regulatory
approvals will be obtained in a prompt manner. In particular, we
have not identified any competitive overlaps between Coherent’s and
II-VI’s respective businesses in China, which we believe
substantially increases the certainty of closing of our transaction
as compared to an acquisition of Coherent by Lumentum or MKS.
Merger Agreement Terms
We have included with this letter a proposed merger agreement,
which is substantially identical to the Current Merger Agreement
with Lumentum. We will agree to the full antitrust covenant. In
addition, we have proposed improvements for the benefit of Coherent
and its stockholders. Specifically:
(1) We believe, given the sale process that has developed, a
termination fee payable by Coherent is an inappropriate impediment
to obtaining the highest value for your stockholders. As such, we
do not seek any termination fee from Coherent in the event that it
enters into a definitive agreement with II-VI which is thereafter
terminated due to Coherent’s acceptance of a superior proposal.
(2) We have shortened the outside date in the agreement by 3
months, based on our confidence that regulatory approvals for our
transaction will be timely received.
In sum, our proposed merger agreement reflects superior terms
for your stockholders compared both to the Current Merger Agreement
and the merger agreement we understand was proposed by MKS.
Due Diligence
We have dedicated significant internal resources and retained
external advisors (including Allen & Company LLC and J.P.
Morgan Securities LLC as our financial advisors, and Wachtell,
Lipton, Rosen & Katz and K&L Gates as our legal advisors)
to enable us to complete diligence within a matter of days. We have
set forth on Annex B our priority diligence items, which we expect
can be satisfied on the same 10-day timeline proposed by MKS by
simply providing us with access to the same information that was
provided to Lumentum and MKS.
Our diligence team will consist of a small number of our most
senior executives, supported by these advisors as appropriate. We
would like to meet with your senior team promptly to develop
further our views regarding potential synergies as well as other
strategic opportunities for the combined company.
In addition, since 50% of the consideration in our Proposal
consists of shares of II-VI common stock, we are ready to make
available information regarding II-VI to Coherent and its advisors
to conduct appropriate diligence.
Next Steps
Our Proposal clearly constitutes a “Company Superior Proposal”
under the terms of the Current Merger Agreement. We are ready to
engage with you immediately and are confident your stockholders
will benefit from your full cooperation with us. We and our
advisors are available to meet to discuss the terms of our Proposal
and to move forward as soon as possible.
In view of the materiality of our Proposal to our respective
stockholders, we are issuing a press release including this letter.
This letter is not intended to be and is not a binding contract or
an offer capable of your acceptance, but rather is a non-binding
indication of our serious interest to enter into a transaction with
Coherent on the terms and conditions proposed herein. Although the
parties will be bound only in accordance with terms and conditions
to be negotiated and contained in a definitive agreement, we are
deeply committed to working with you to achieve a transaction.
We are pleased to provide you with this superior proposal. A
combination of II-VI and Coherent is a uniquely compelling
opportunity to create significant value for our respective
stockholders, employees and business partners. We look forward to
hearing from you soon.
Very truly yours,
Dr. Vincent D. (Chuck) Mattera, Jr.Chief Executive
Officer
About II-VI Incorporated
II-VI Incorporated, a global leader in engineered materials and
optoelectronic components, is a vertically integrated manufacturing
company that develops innovative products for diversified
applications in communications, materials processing, aerospace
& defense, semiconductor capital equipment, life sciences,
consumer electronics, and automotive markets. Headquartered in
Saxonburg, Pennsylvania, the Company has research and development,
manufacturing, sales, service, and distribution facilities
worldwide. The Company produces a wide variety of
application-specific photonic and electronic materials and
components, and deploys them in various forms, including integrated
with advanced software to support our customers. For more
information, please visit us at www.ii-vi.com.
Forward-looking StatementsThis press release
contains forward-looking statements relating to future events and
expectations that are based on certain assumptions and
contingencies. The forward-looking statements are made pursuant to
the safe harbor provisions of the U.S. Private Securities
Litigation Reform Act of 1995 and relate to the Company’s
performance on a going-forward basis. The forward-looking
statements in this press release involve risks and uncertainties,
which could cause actual results, performance or trends to differ
materially from those expressed in the forward-looking statements
herein or in previous disclosures.
The Company believes that all forward-looking
statements made by it in this release have a reasonable basis, but
there can be no assurance that management’s expectations, beliefs
or projections as expressed in the forward-looking statements will
actually occur or prove to be correct. In addition to general
industry and global economic conditions, factors that could cause
actual results to differ materially from those discussed in the
forward-looking statements in this press release include, but are
not limited to: (i) the failure of any one or more of the
assumptions stated above to prove to be correct; (ii) the risks
relating to forward-looking statements and other “Risk Factors”
discussed in the Company’s Annual Report on Form 10-K for the
fiscal year ended June 30, 2020; (iii) the purchasing patterns of
customers and end-users; (iv) the timely release of new products,
and acceptance of such new products by the market; (v) the
introduction of new products by competitors and other competitive
responses; (vi) the Company’s ability to integrate recently
acquired businesses and realize synergies, cost savings and
opportunities for growth in connection therewith, together with the
risks, costs and uncertainties associated with such acquisitions
and integration efforts; (vii) the Company’s ability to devise and
execute strategies to respond to market conditions; (viii) the
risks of business and economic disruption related to the currently
ongoing COVID-19 outbreak and any other worldwide health epidemics
and outbreaks that may arise; (ix) the outcome of any discussions
between the Company and Coherent (“Coherent”) with respect to a
possible transaction, including the possibility that the parties
will not agree to pursue a business combination transaction or that
the terms of any transaction will be materially different from
those described herein; (x) the conditions to the completion of the
proposed transaction, including the receipt of any required
stockholder and regulatory approvals; (xi) the Company’s ability to
finance the proposed transaction with Coherent and the substantial
indebtedness the Company expects to incur in connection with the
proposed transaction, and the need to generate sufficient cash
flows to service and repay such debt; (xii) the possibility that
the Company may be unable to achieve expected synergies and
operating efficiencies within the expected time-frames or at all
and to successfully integrate Coherent’s operations with those of
the Company; and (xiii) the possibility that such integration may
be more difficult, time-consuming or costly than expected or that
operating costs and business disruption (including, without
limitation, disruptions in relationships with employees, customers
or suppliers) may be greater than expected in connection with the
proposed transaction. The Company disclaims any obligation to
update information contained in these forward-looking statements
whether as a result of new information, future events or
developments, or otherwise.
No Offer or SolicitationThis document shall not
constitute an offer to sell or the solicitation of an offer to buy
any securities, nor shall there be any sale of securities in any
jurisdiction in which the offer, solicitation or sale would be
unlawful prior to the registration or qualification under the
securities laws of any such jurisdiction. No offering of securities
shall be made except by means of a prospectus meeting the
requirements of Section 10 of the U.S. Securities Act of 1933, as
amended.
Additional Information and Where to Find ItThis
communication does not constitute an offer to buy or solicitation
of an offer to sell any securities. This communication relates to a
proposal that II-VI has made for a business combination transaction
with Coherent. In furtherance of this proposal and subject to
future developments, II-VI (and, if a negotiated transaction is
agreed to, Coherent) may file one or more registration statements,
proxy statements, tender offer statements or other documents with
the SEC. This communication is not a substitute for any proxy
statement, registration statement, tender offer statement,
prospectus or other document II-VI and/or Coherent may file with
the SEC in connection with the proposed transaction. INVESTORS AND
SECURITY HOLDERS OF II-VI AND COHERENT ARE URGED TO READ THE PROXY
STATEMENT(S), REGISTRATION STATEMENT, TENDER OFFER STATEMENT,
PROSPECTUS AND/OR OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN
THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE AS THEY WILL
CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Any
definitive proxy statement(s) or prospectus(es) (if and when
available) will be mailed to stockholders of II-VI and/or Coherent,
as applicable. Investors and security holders will be able to
obtain free copies of these documents (if and when available) and
other documents filed with the SEC by II-VI through the web site
maintained by the SEC at www.sec.gov, and by visiting II-VI’s
investor relations site at
https://ii-vi.com/investor-relations/.
Participants in the SolicitationThis
communication is neither a solicitation of a proxy nor a substitute
for any proxy statement or other filings that may be made with the
SEC. Nonetheless, II-VI and its directors and executive officers
and other members of management and employees may be deemed to be
participants in the solicitation of proxies in respect of the
proposed transaction. You can find information about II-VI’s
executive officers and directors in II-VI’s proxy statement for its
2020 annual meeting, which was filed with the SEC on September 29,
2020 and in II-VI’s Annual Report on Form 10-K for the fiscal year
ended June 30, 2020, which was filed with the SEC on August 26,
2020. Additional information regarding the interests of such
potential participants will be included in one or more registration
statements, proxy statements, tender offer statements or other
documents filed with the SEC if and when they become available.
These documents (if and when available) may be obtained free of
charge from the SEC's website www.sec.gov, and by visiting II-VI’s
investor relations site at
https://ii-vi.com/investor-relations/.
CONTACTS:
InvestorsMary Jane RaymondChief Financial
Officerinvestor.relations@ii-vi.com www.ii-vi.com/contact-us
MediaSard Verbinnen & CoGeorge Sard/Jared
Levy/David IsaacsII-VI-SVC@sardverb.com
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