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Chaska's FSI sold to Japanese company for $252.5 million

  • Article by: STEVE ALEXANDER
  • Star Tribune
  • August 13, 2012 - 8:44 PM

Chaska-based FSI International, one of the Twin Cities oldest computer technology companies, has come to the end of its 39-year streak of independence.

Tokyo Electron Limited has made a $252.5 million tender offer for FSI, which makes computer chip manufacturing equipment. Founded in 1973 by Joel Elftmann, now retired, FSI was able to ride on the shoulders of the metro area's big computer firms of the 1960s and '70s -- Control Data, Honeywell and Sperry Univac (now Unisys).

"Those companies drove an understanding of how to manufacture computer components," said Benno Sand, FSI's executive vice president of business development and investor relations. "We've continued to leverage that."

But FSI is finally bowing to the reality that, in today's world, you have to be big to compete.

As a relatively small company with annual revenue in fiscal 2011 of $96.9 million, and 400 employees, FSI had not been able to sell to computer chip industry giants such as Intel, Sand said. "If a company such as Intel is going to make an investment in very expensive equipment for the next chip technology, they want to work with a larger company that has global resources it can bring to bear when there's a problem," Sand said. "Even though FSI has good technology, at our size we don't have those resources around the world."

The acquisition by Tokyo Electron, which has annual revenue of $8 billion, "was an opportunity for FSI be part of larger organization with larger resources," Sand said.

Donald Mitchell, FSI's CEO, called the transaction a "compelling opportunity" for the company's shareholders, employees and customers that combines the "market position, scale and operational excellence" of Tokyo Electron with FSI's leading-edge technology.

The stock of Chaska-based FSI International rocketed nearly 53 percent Monday after the company disclosed that Tokyo Electron Limited had made a tender offer of $6.20 per share in cash, a 53.5 percent premium over FSI's closing stock price on Friday.

The deal is expected to close by year's end.

After the Monday's share price runup, Christian Schwab, an analyst with Minneapolis-based investment firm Craig- Hallum, changed his recommendation on the stock to "hold'' from ''buy.''

Hiroshi Takenaka, CEO of Tokyo Electron, said in a statement that FSI has "repeatedly developed creative solutions to key challenges in semiconductor manufacturing. I'm convinced that the acquisition will expand [Tokyo's] business.''

FSI officials declined to say whether the exceptionally high premium reflected a bidding war for FSI, which makes computer chip manufacturing equipment costing $2 million to $6 million. They said documents explaining the bidding process will be filed with the Securities and Exchange Commission next week.

But even though FSI is relatively small, it has been growing. Estimated sales for fiscal 2012, ending Aug. 31, rose to $145 million, with estimated earnings of $15.4 million.

Sand said the results reflect new products developed over the past three years and a longer-term effort to broaden marketing to more Asian countries.

The growth has occurred despite a deep downturn at the company during the recession, Sand said.

"Our segment of the chip manufacturing equipment industry declined 90 percent in dollar value from a peak in January 2007 to a valley in July 2008," Sand said. "At FSI, the dollar value of orders went down 70 percent." The company laid off 150 of its workers, although it has now returned to the 400-employee level as its fortunes improved.

Over the past three years, it has switched the technology of its equipment to reflect industry trends. FSI's equipment cleans the surface of silicon wafers several times during a manufacturing process in which successive layers of circuitry are laid down on the chip's surface.

As the industry shifted from cleaning many wafers at once to cleaning them one at a time -- an important efficiency move as the number of chips in a batch declined -- FSI had to redo its technology to fit, Sand said. Some of the new FSI technology is novel, such as a $2 million device that cleans chips with streams of frozen argon and nitrogen crystals.

"This company has done a great job of innovating and reinventing itself in a very complicated, technology-based industry," Sand said.

Steve Alexander • 612-673-4553

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