Electro Scientific, Zygo merger rejected after Zygo tries to add cash payment, additional board seat

By Devika Patel

Knoxville, Tenn., Jan. 29 - Electro Scientific Industries, Inc. gave further details on Zygo Corp.'s decision to withdraw its recommendation in favor of the companies' Oct. 15 merger agreement in a Thursday press release.

As previously reported, Electro Scientific agreed on Oct. 16 to acquire Zygo in an all-stock transaction that would give Zygo shareholders 1.0233 shares of Electro Scientific stock for each share of Zygo stock in a tax-free transaction valued at about $10.30 per share.

The merger agreement had been approved unanimously by each company's board of directors.

On Jan. 14, Electro Scientific received a proposal from Zygo to increase the merger consideration by $4.00 cash per Zygo share and to increase the number of Electro Scientific board seats held by Zygo designees after closing to four from three.

Electro Scientific said it rejected the proposal on Jan. 20 because it believes the original agreement was reflective of the companies' relative values.

As a result, the Zygo board notified Electro Scientific that it was withdrawing its recommendation in favor of the merger.

"We are disappointed by the decision of Zygo's board, and we do not agree with their conclusion," Electro Scientific president and chief executive Nick Konidaris said in the release. "In our view, the strategic rationale for this merger remains intact, and the structure of the transaction reflects the long-term relative value of the two companies.

"We are considering our alternatives under the merger agreement, which include terminating the agreement and demanding the breakup fee of $6.6 million as provided in the contract. Regardless of the outcome, we intend to pursue our growth strategy of expanding into adjacent markets and applications."

Portland, Ore.-based Electro Scientific supplies photonic and laser systems to microelectronics customers.

Zygo supplies optical metrology instruments, precision optics and electro-optical design and manufacturing services. The company is located in Middlefield, Conn.

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