II-VI Inc. (NASDAQ: IIVI) has jumped into the sweepstakes for Coherent, Inc. (NASDAQ: COHR) with a proposal that tops those of Lumentum and MKS Instruments (MKSI). The company on February 12 sent a letter to Coherent’s board of directors offering $130.00 in cash and 1.3055 II-VI common shares for each share of Coherent common stock, a value of $260.00 per share for a total of approximately $6.5 billion.
Based on the closing share prices of the respective companies on Friday, II-VI’s proposal offers a premium of 24.0% to the implied value of Coherent’s merger agreement with Lumentum (see "Lumentum to buy Coherent to expand laser and photonics reach") as well as a 9.8% premium on the bid from MKSI (see "MKS Instruments files bid for Coherent in defiance of Lumentum sales agreement"). II-VI also asserted that its product lines produce less overlap with those of Coherent than do Lumentum’s and MKSI’s, particularly in China, making a tie up with II-VI more likely to receive regulatory approval.
“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,” stated Dr. Vincent D. Mattera, Jr., CEO of II-VI. “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 said it also expects to achieve estimated, combined run-rate synergies of $200 million annually within 36 months of closing. The deal will prove accretive to non-GAAP earnings per share in the second year following closing, the company also estimated. II-VI says it plans to gather the necessary funds via a combination of cash on hand and debt financing led by J.P. Morgan Securities LLC. Bain Capital also has expressed what II-VI termed “strong interest” in an equity investment in the combined company.
Coherent’s board has said little about the proposal aside from acknowledging its receipt this past Friday. “Coherent’s board of directors, consistent with its fiduciary duties and in consultation with its financial and legal advisors, is carefully reviewing and considering II-VI’s proposal. There can be no assurances that Coherent will conclude that the transaction proposed by II-VI is superior to Coherent’s pending transaction with Lumentum or the proposal from MKS. Coherent stockholders are advised to take no action at this time and encouraged to await a final determination from Coherent’s board of directors,” Coherent’s board said via a statement on Friday.
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