Analyst: Semitool sells cheap; Applied Materials keeps looking; fertilizer saga nears end

By Cristal Cody

Tupelo, Miss., Nov. 17 - Investors drove shares of Semitool, Inc. up more than 31% on Tuesday after Applied Materials, Inc. said it will buy out the company for $364 million.

But if Semitool had been patient, the price likely would have been higher, an analyst told Prospect News.

Meanwhile, Applied Materials executives said Tuesday the company will continue looking for deals in the semiconductor segment.

In other situations, an analyst told Prospect News that another chapter nears in the three-way battle between Terra Industries Inc., CF Industries Holdings, Inc. and Agrium Inc.

Agrium's tender offer for CF Industries' shares ends Wednesday. CF Industries, meanwhile, waits for Terra's annual shareholders meeting on Friday in an attempt to gain seats on the board of directors.

On Wall Street, stocks continued to edge up on Tuesday.

The Dow Jones Industrial Average gained 30.46 points, or 0.29%, to close at 10,437.42.

The Standard & Poor's 500 index added 1.02 points, or 0.09%, to 1,110.32. The Nasdaq Composite index closed up 5.93 points, or 0.27%, at 2,203.78.

Semitool takes offer

Shares of Semitool advanced $2.62, or 31.19%, to close Tuesday at a fresh annual high of $11.02 on Applied Materials' offer of $11.00 per share in an all-cash tender offer.

The bid represents a 31% premium over the $8.40 closing price of Semitool shares on Monday.

Still, the company could have commanded a higher price, Matthew Petkun, an analyst with D.A. Davidson & Co., said in an interview on Tuesday.

Kalispell, Mont.-based Semitool is a leading supplier of electrochemical plating and wafer surface preparation equipment used by chip-packaging and chip-making companies.

Santa Clara, Calif.-based Applied Materials, which designs and manufactures semiconductor fabrication equipment, said it plans to use the acquisition to help chip makers create smaller and more powerful mobile devices, such as smart phones and notebook computers.

"I think they could've gotten more for it, but it's what they got," Petkun said.

"If they would've been patient, then they would've earned more money next year and that earnings power would be more powerful to a potential buyer," he said. "But instead they decided to take the offer before then, which wasn't a bad offer, either. The markets they serve are notoriously cyclical, and they thought this was a fair price given the time in the market."

Petkun said he doesn't expect a competing offer.

Ray Thompson, Semitool's chairman, said on a conference call with analysts on Tuesday that the deal makes sense because of "Applied's strength in the marketplace versus ours. Their muscle out there, I believe, will enhance our order rate considerably."

At least two-thirds of Semitool's outstanding shares must be tendered in the deal. Semitool directors and executives holding 32% of the company's outstanding stock already have agreed to tender their shares.

Applied Materials expects to start the tender offer soon, with the offer projected to close by the end of the year.

The deal must receive regulatory approval, but no meaningful antitrust concerns are likely, Petkun said.

"There's not a lot of overlap between the two companies from a product perspective," he said.

Applied Materials said the deal will make it the leader in the fast-growing semiconductor segments of advanced packaging and the memory industry's conversion to copper.

The company also expects to continue looking for opportunities, Mike Splinter, chairman and chief executive officer of Applied Materials, said on the conference call.

"Clearly, semiconductor is our core business," he said. "It fits into our overall strength and overall business. We're certainly doing these kinds of things in the future. We're still thinking very strongly about investments in semiconductors."

Applied Materials' shares fell 11 cents, or 0.84%, to close at $12.94.

Fertilizer battle continues

Shares of CF Industries closed up $2.60, or 3.20%, at $83.89 on Tuesday.

Calgary, Alta.-based Agrium's tender offer of $45.00 a share in cash and one share for each CF Industries share is scheduled to expire on Wednesday.

RiskMetrics Group on Monday said that CF Industries shareholders should tender their shares into Agrium's offer to get the company to the negotiating table.

However, RiskMetrics also last week backed CF Industries' dissident slate of three nominees to Terra's board.

Agrium's offer is contingent upon CF Industries dropping its hostile takeover of Terra, a Sioux City, Iowa-based nitrogen producer.

"This is a saga," Edlain Rodriguez, an analyst with Broadpoint Amtech, Inc., told Prospect News on Tuesday.

RiskMetrics' recommendations on CF Industries and Terra provide a twist to the plot.

"They're big and they'll definitely have a sway, but it's all up in the air," Rodriguez said. "This thing has been going on for almost a year now. Hopefully over the next few days, we'll get a resolution in the sense that Agrium's bid is over tomorrow and Terra is going to have their investors day on Friday."

On Tuesday, Terra asked employees who are also shareholders to make sure to vote their shares to re-elect its three independent directors ahead of Friday's meeting, where three out of the eight board seats are up for election.

Three other proxy advisory firms, Glass, Lewis & Co., Proxy Governance, Inc. and Egan-Jones Proxy Services, have recommended shareholders vote for Terra's independent directors.

Terra's board has rejected all six takeover proposals made since January 2009 by Deerfield, Ill.-based CF Industries, a nitrogen and phosphate fertilizer producer and distributor.

On Tuesday, CF Industries' president and CEO, Stephen Wilson, said in a letter sent to Terra shareholders that the company's offer of $32.00 in cash and 0.1034 of a share for each Terra share is certain versus "an uncertain value that is trading on speculation. If our nominees do not get elected at the upcoming election, we believe that the value of your Terra shares will decline significantly."

Terra shares picked up 46 cents, or 1.23%, to close at $37.98 on Tuesday.

Agrium's stock rose $1.76, or 3.27%, to $55.54.

Mentioned in this article:

Agrium Inc. NYSE: AGU

Applied Materials, Inc. Nasdaq: AMAT

CF Industries Holdings, Inc. NYSE: CF

Semitool, Inc. Nasdaq: SMTL

Terra Industries Inc. NYSE: TRA

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