Oct 18 - The announcement this week by ASML of its plan to acquire Cymer Inc. has industrial logic and limited downside credit risk, says Fitch Ratings.
Although the acquisition is a departure from ASML's outsourced approach to its supply chain, ASML accounted for 35% of Cymer's 2011 revenue and the two companies already work very closely together. In addition, Cymer's revenue streams are increasingly weighted toward the Netherlands-based litho manufacturer and ASML has a leading position in the design of leading-edge systems.
The acquisition should therefore allow for R&D synergies and further collaboration within the two companies' overlapping supply chain. ASML expects a significant increase in gross margins in the next three to four years, and that the deal will be positive for earnings in year two.
ASML's co-investments with Intel, Samsung and TSMC in extreme ultraviolet (EUV) development, along with the Cymer acquisition, suggest a degree of vertical integration among some key industry players. ASML is taking a central position. Risks remain of course - one of Cymer's competitors could prove more advanced in the development of EUV. But in light of the links that already exist between the two companies, this seems unlikely.
The deal structure allows for most of the EUR1.95bn cost to be paid for in ASML shares (around 9% of the existing equity base) with the cash part about USD620m (EUR475m). The equity weighting underlines the strategic nature of the deal.
In light of ASML's reported gross cash of EUR3.2bn at Q312 - pro forma for the co-investment proceeds received so far that will be returned to shareholders - we do not expect the cash element to affect ASML's healthy liquidity. We expect the deal to close in 2013, subject to Cymer shareholder approval and regulatory clearance. We rate ASML ('BBB'/Stable).