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Mattson Technology Eaten by Dragon!

Robert Maire

The long suffering of the weakest player in the semiconductor equipment space is over as it is bought by a Chinese investment firm. The current downturn finally killed Mattson after a long decline that started way back in 2000 after many years of losses and burning cash...

Too small to keep up- weakest of all players...
Mattson announced that it will be acquired by Beijing E-Town Dragon Semiconductor Industry Investment Center (Limited Partnership) an investment vehicle for $3.80 a share in cash.

Mattson has been both the weakest and poorest performing semiconductor equipment company with a long history of financial losses and market share losses despite a late change in management several years ago.

It has been clear for quite a while that the company did not have the resources to keep its three product lines, thermal, strip & etch up to competitive speed due to its weak financial position. The company had been cutting expenses to try to right the ship but likely ran out of things to cut.

Had spurned earlier offers- no one left to buy...
Over the past years as the company has been in decline the board had spurned other higher valued offers from other equipment companies only to now left with no industry suitors as the company declined to a point of irrelevancy as others have merged into much larger entities.

Dragon's Intentions unclear...
We are unsure as to what E-Town will do with Mattson. Will it pack it up and move it to China? The greater China has talked about $100B of investment in Semiconductor technology and this is a drop in the proverbial bucket.

Will they keep Mattson as is and pour money into a hemorrhaging hole? It will be an interesting test as this is the first Chinese acquisition of a US semiconductor equipment company. This is not a very bold start, buying the worst equipment company as compared to the very bold bid by the Chinese to buy Micron. Even if the Micron bid was doomed from the start it was certainly headline grabbing.

Easy approval...
We would expect easy approval of the deal as Mattson has no advanced technology that the US government would be concerned about and has such low market share as to be a rounding error in markets served. Shareholders should obviously be happy with the premium received especially in light of the poor near term outlook

Loose Lips Soar Stocks...
It seems relatively clear that word of the acquisition had leaked out prior to the announcement of the deal as the stock was up very sharply and acted unusually strong over the last several days and week despite its poor outlook. The company likely had to rush the announcement as the acquisition premium was 55% over the last 30 days trading but only 23% above todays close after the stock had been run up on what appears to be leaked word of the deal.

Inglorius end of an era...
Mattson was started by the industry veteran Brad Mattson who put his imprint on Applied Materials and later went on to start Novelus (now part of Lam) and then on to found Mattson as his namesake. It had a strong start in strip but its denouement came in 2000 when it acquired two companies, CFM technologies and Steag AG at the same time in a deal that turned out poorly timed as the industry was about to drive off a cliff.

Collateral Impact....positive for ACLS, RTEC, NANO, NVMI, UTEK...
As we had mentioned in our recent note talking about "merger mania" its clear we are still far from over in the game of musical chairs. We would expect a positive reaction of the stock of ACLS (Axcelis) as the company is small and acquirable but is in way better shape than Mattson with a highly successful product and technology that others would likely be desirous of. The there is always the metrology triplets of Rudolph (RTEC) Nanometrics (NANO) and Nova Measuring (NVMI) all three of which are very good companies with desirable technology and products but each a bit on the small side. Any combination of merger between the three would be good and each individually could be acquired by a larger player. Ultratech (UTEK) still has a large cash hoard and thus a low enterprise value largely due to some struggles in key products over the last few years but in our view still a very "buyable" company, particularly by a larger player.

Could China be the dark knight for these companies?
All off the above companies could be bought by the Chinese for a relative rounding error in their $100B semiconductor aspirations. In these cases the Chinese would be getting companies in good shape as compared to Mattson and thus more highly valued. China could conceivably come in and pick up a number of companies and start to cobble together the beginnings of a semiconductor equipment industry and pick up some useful technology on the way.

We'll see if Mattson is just a one off or the beginning baby steps of a larger trend.

Beware the Dragon!!

Mattson Technology, Inc. Enters Into a Definitive Agreement to Be Acquired by the Beijing E-Town Dragon Semiconductor Industry Investment Center for $3.80 per Share in Cash