Axcelis Technologies Inc (NASDAQ:ACLS) has announced that it has agreed to sell its 50% interest in SEN Corporation, its joint venture with Sumitomo Heavy Industries, Ltd. (SHI) to SHI for Y13 billion, or approximately $133 million, in cash. This is an outstanding achievement by ACLS management under difficult conditions. The sale will provide the liquidity necessary to meet the $85M due to the holders of the company’s 4.25% Convertible Senior Subordinated Notes, upon which ACLS defaulted in January.
We started following ACLS on January 8 this year because it is an undervalued asset play with an activist investor, Sterling Capital Management, holding 10.7% of its outstanding stock. In our initial post we estimated ACLS’s liquidating value at $134.9M, or $1.31 per share. Assuming the sale is completed, we estimate ACLS’s liquidating value to be slightly higher at $147M or $1.43 per share, which is more than 300% higher than its close yesterday of $0.35.
The value proposition updated
ACLS is generating substantial and increasing operating losses, reaching a $22.8M nadir for the September quarter (see the September 10Q here). We have adjusted the September 10Q balance sheet to account for the sale of the SEN JV and to back out several other payments and projected it forward to March (the “Book Value” column shows the assets as they are carried in the financial statements, and the “Liquidating Value” column shows our estimate of the value of the assets in a liquidation):
This summary balance sheet assumes that the $133M to be received in March 2009 from the sale of SEN is used to pay off the notes first (approximately $85M) with the remainder added to cash. We have backed out a further $15M in termination payments from cash. This summary balance sheet also assumes that ACLS burns an additional $22M in cash in the current quarter. The company is still making substantial operating losses that have widened over the last five quarters, so these amounts are likely to be substantial on an ongoing basis.
The press release
ACLS has not yet filed an 8K but the press release is as follows (via Tradingmarkets.com):
Axcelis Technologies, Inc. (Nasdaq:ACLS) today announced that it has entered into a Share Purchase Agreement in which Sumitomo Heavy Industries, Ltd. (“SHI”) will purchase Axcelis’ 50% interest in their joint venture, SEN Corporation, an SHI and Axcelis Company, (“SEN”), for Y13 billion, or approximately $133 million, in cash at current conversion rates. Axcelis and SHI each currently own 50% of SEN, a Japanese company that is licensed by Axcelis to manufacture and sell certain implant products in Japan.
It is anticipated that the transaction between Axcelis and SHI will be completed on March 31, 2009. Axcelis will use a portion of the proceeds from the sale of its SEN interests to meet its obligations under its 4.25% Convertible Senior Secured Subordinated Notes, which were due in January. Pending the closing, the trustee for the notes has agreed to stand down on litigation filed in connection with Axcelis’ default on the notes.
Mary Puma, Chairman and CEO of Axcelis, said: “This transaction serves the best interests of Axcelis shareholders as it enables us to fulfill our senior debt obligations and gives us greater financial flexibility during this difficult economic climate and semiconductor industry downturn. Axcelis will continue to fully focus its efforts on tight cash and cost controls and on developing and selling innovative products like our Optima implanters and Integra dry strip tools, both of which have received strong customer reviews. With these products, Axcelis believes that we can compete and gain market share once demand for semiconductor equipment returns.”
As part of the transaction, at the closing Axcelis and SEN will enter into cross licenses that will allow the two companies to continue to use certain patents and technical information owned by the other to make and sell ion implant systems on a worldwide, royalty-free, perpetual basis. Axcelis’ license to SEN would not include patents, licenses, or technical information developed by Axcelis for the Optima HD, Optima XE, or any non-implant products. The transaction will terminate all existing agreements among Axcelis, SHI and SEN relating to the SEN joint venture.
More information can be found in the Form 8-K that Axcelis will file with the Securities and Exchange Commission at http://www.sec.gov.
Hat tip to manny.
[Full Disclosure: We have a holding in ACLS. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]
[…] Hat tip to manny. […]
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Axcelis Technologies has said it has completed the sale of its 50% ownership in SEN Corp to Sumitomo Heavy Industries, Ltd. (SHI). Net proceeds from the sale were approximately US$122.3 million, resulting in approximately US$10 million in expenses related to the deal. SHI paid approximately US$132.6 million.
As expected, Axcelis has used US$86.4 million of the proceeds to repay Convertible Senior Subordinated Notes that were due in January but the company had failed to secure alternative finance last year to pay the notes. Litigation related to the Notes was said to have been dropped now that payment has been received.
Cash returning to Axcelis is approximately US$35.9 million.
http://www.fabtech.org/news/_a/axcelis_gains_us359_million_from_sale_of_sen_corp_to_shi/
http://www.streetinsider.com/Corporate+News/Axcelis+Technologies+(ACLS)+Completes+Sale+of+its+50%25+Interest+in+SEN+Corporation+to+Sumitomo+Heavy+Industries/4521585.html
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ACLS 3/16 filed for delay in submitting 10k, will submit by 3/31, discusses estimated results, also management discussing ability to remain a going concern even if/when SEN sales closes…
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Thanks, jm. Should be interesting.
G
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Sterling plan can still be instituted:
“After repayment of the $85 million of debt the newly restructured Axcelis would have net cash of approximately $100 million. Given the low capital intensity of the aftermarket business and its relative stability, at least $50 million of this cash could be used for share repurchases. Assuming an average repurchase price of $1.50 per share Axcelis could retire 33 million shares…”
ACLS could still repurchase 30mm shares at a much lower price of say .50 and have cash left of appx 50mm (I’m seeing somewhat higher 3/31/09 cash, 62mm plus 33mm minus 12mm q4 burn minus 15mm q1 burn = 68mm, assuming no change in receivables and payables)
Aftermarket business, which consists of part of the products business along with the service business would produce profits but tough to grow without new product sales
anyway, we have a stock at 18 cents a share, with 60mm cash, HQ, and an embedded 100mm+ business with 50% margins
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Thanks, JM. We remain confident of a positive outcome for our holding in ACLS.
G
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