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MKS Instruments’ acquisition of Atotech may need to be renegotiated, canceled

MKS Instruments headquarters in Silicon Valley

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MKS tools (NASDAQ:MKSI) 5 billion dollar plan Acquiring Atotech (NYSE:ATC) may have to be renegotiated or According to Wells Fargo, the deal could be canceled on March 31.

With Atotech (ATCWells Fargo analyst Joe Quatrochi, who has a $155 price target and equal weight rating on MKSI, wrote in a note). on Wednesday. MKSI will likely raise the offering price to $2/share for the cash portion of the deal.

The analyst’s comments come as the combination has been delayed as China’s antitrust authorities analyze the deal as reported by third parties. have interest about the acquisition. A report from last week said the transaction was supposed to have has been re-filtered before China’s main antitrust regulator.

“While it remains difficult to predict whether China’s SAMR will provide approval for this deal, we are not surprised that China is looking closely at the deal,” Quatrochi wrote in the note.

Atotech (ATC) last week declined to comment to Seeking Alpha on reports the deal is being finalized in China and/or whether it needs to be extended.

While China’s State Administration for Market Regulation (“SAMR”) initially planned to scrap the agreement without conditions, SAMR received concerns from third parties during its audit. final inspection, according to a report earlier this month.

Quatrochi compared the ATC/MKSI deal to the $3.5 billion Applied Materials (AMAT) / Trading Kokusai 2019-2021 in the semi-adjacent device space, despite many trading extensions by China’s antitrust authority, never received approval and has been terminated after the agreement period has passed.

MKS tools (MKSI) said in December that the ATC deal had received approval, or signs it was imminent, from 12 of 13 global antitrust regulators, with China the last remaining. approve. The company at the time pushed back the deal to Q1 from Q4.

At the end of Friday, Atotech (ATC) the stock is trading at a 9% discount from the implied sell value compared with a 2% discount at the end of February, which suggests that traders are more concerned about closing out the trade. .

MKSI stock will likely react positively to a canceled deal, and the termination could lead to a “relief rally,” according to Wells Fargo’s Quatrochi, who stressed that MKSI stock has fallen ~ 19% since the deal was announced in early July against the Philadelphia Semiconductor Index (“SOX”), down ~4%. A delayed or renegotiated deal could also be a negative for MKSI stock.

“We expect this to be viewed negatively, as the transaction uncertainty persists and is likely to demand additional value (higher price or special split?) for owners. own ATC, as the stock is below pre-trade speculation,” Quatrochi wrote.

Another problem with the ATC/MKSI agreement is the possibility of Carlyle involvement (CG) after-trading selling pressure, which appears to have been a “large portion” of MKSI stock since the deal was announced, according to Quatrochi. Carlyle Group will own 13.1% of the combined company after the closure, including a phased 60-day lockout where CG can sell 20% ownership immediately. when closed. Carlyle and its affiliates, owners of 79% of the outstanding Atotech common stock.

“While we think this can be accomplished via block trading, discussions have focused on qualifying stocks that will be sold within 60 days of the transaction closing because it accounts for almost 50 percent of the total. % of MKS monthly trading volume,” Quatrochi wrote.

MKS tools (MKSI) has agreed to buy Atotech (ATC) for $16.20 in cash and 0.0552 shares of common stock MKS in july.

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