Reality Check: Verigy Could Fetch More (VRGY, ATE, LTXC)

Verigy Ltd. (NASDAQ: VRGY) is surging on word of an unsolicited acquisition offer this Monday.  The proposal was from Advantest Corporation (NYSE: ATE) to acquire in cash all of the outstanding ordinary shares of Verigy for $12.15 per share.  Verigy’s press release this morning noted that its board of directors determined that this new Advantest proposal is not superior to the pending transaction already on the table with LTX-Credence (NASDAQ: LTXC).  The stage is being set for a bidding war.

Verigy noted in a response that it believes the Advantest proposal might lead to a superior transaction.  That belief has led the company to engage in discussions with Advantest.

While there are of course no assurances, this is how bidding wars commence.  If there are two parties interested it also lends hope that a third party could surface as well.  It was just on November 18, 2010 that Verigy announced its LTX-Credence merger.  Under that merger, Verigy would own roughly 56% of the new entity and LTX-Credence shareholders would own about 44% of the combined company.

The official statement cited, “The Verigy Board continues to believe in the compelling strategic and financial merits of its proposed transaction with LTX-Credence, and continues to recommend the LTX-Credence transaction to its shareholders. The Verigy Board is not withdrawing its recommendation with respect to the LTX-Credence transaction, or proposing to do so, and is not making any recommendation with respect to the Advantest proposal.”

Being opportunistic is not out of the norm.  Morgan Stanley is acting as financial advisor to Verigy. Wilson Sonsini Goodrich & Rosati is acting as Verigy’s U.S. legal counsel and Allen & Gledhill is acting as Verigy’s Singapore counsel.

At issue is what Verigy does and its future growth being assured.  While it is in semiconductor testing solutions, the company is targeted in design validation, characterization, and high-volume manufacturing testing geared toward system-on-chip test solutions, as well as memory test solutions for Flash memory, DRAM and high speed memory, and multi-chip packages.

For whatever it is worth, Verigy shares traded above $20 as recently as mid-2008.  It is also worth noting that the $12.15 offer is still south of where this traded when it came public in 2006 and that the stock reached above $25.00 in 2007.  The problem is that revenues fell severely in the recession and Verigy’s revenues went from $761 million in 2007 to $691 million in 2008 and $323 million in 2009.  The report from November showed that the October year-end for 2010 was $539 million in revenues.  Thomson Reuters has estimates of $608.81 million for 2011 and $688.13 million for 2012.

After a 35% pop to $12.39, Verigy, Ltd. (NASDAQ: VRGY) now has a market cap of $743.5 million.  LTX-Credence Corporation (NASDAQ: LTXC) is down 11.5% on the news and its current market cap is now $368 million.  Advantest Corp. (NYSE: ATE) is down only 1.5% at $21.38 and its current market cap is $3.7 billion.

A higher bid is not assured here.  Not by a long shot.  Still, it is easy to see how many want more and expect more.

JON C. OGG