Kulicke & Soffa: Is CEO Fusen Chen Prepping Another Acquisition Or Merger?

| About: Kulicke and (KLIC)

Summary

This company is a steal for private equity - they have a net worth of $805M and $665M in cash, and they are profitable on sales of $627M annually. Market

New incoming CEO is the clear indicator of impending acquisition - Fusen Chen just finished a tenure at Matson Tech, where he prepped the company for Chinese takeover.

KLIC has been in the semiconductor industry for over 65 years and the established relationships are valuable to an acquirer, giving further basis to speculation of an acquisition.

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Welcome. In this article I will cover a few points that lead me to believe Kulicke & Soffa Industries (NASDAQ:KLIC) will be merged with another company or taken private within the next few short years. The investment thesis is to own the stock and get paid off when one of the expected events occur. Investors will receive the best returns if they take a patient approach to KLIC. Setting an alert for a lower price level - say, $12 - and picking up shares if the company gets beaten down to that level is likely to result in a profitable trade.

New CEO Fusen Chen: Lead Mattson Technologies (NASDAQ:MTSN) To Be Acquired By Chinese Private Equity Firm E-Town Dragon

Fusen Chen was an executive at Novellus (NVLS) as they geared up to merge with Lam Research (NASDAQ:LRCX) back in 2012. The man has developed connections in Asia, an opportunity he took while working with Novellus' Asian customers for several years before the merger. Mark one for Fusen Chen and dealmaking.

After leaving Novellus Dr. Chen was appointed CEO of Mattson Technologies in 2013. He led the company until it was acquired by E-Town Dragon in 2016. The announcement for the acquisition was made during the 4th quarter of 2015 after the stock price of Mattson had collapsed from over $5.00 per share to less than $3.00 per share during the trailing twelve month period.

Approaching KLIC And Making Profits On This Opportunity

KLIC does business and has offices in the U.S., but their headquarters is in Singapore, so it's unlikely any of Trump's protectionist measures will stop another deal made with Chinese capital.

The company's balance sheet is in great shape. They have a tangible net worth of $805M and cash of $665M. In the last twelve months they've made over $600M in sales and earned $47.11M net profit. The company has averaged approximately $40M in free cash flow per annum during the last few years, and a conservative valuation of 10 times free cash flow puts the operating business value at $400M.

Today KLIC's market cap is $1.15B, so taking the cash out of the company we are offered a price tag of $485M for the operating business. Which makes this a reasonably priced business at 10X price to earnings ratio.

Overall the company is an attractive takeover candidate for a Chinese firm because it will give them the opportunity to move capital out of their country, something wealthy Chinese are anxious to do (read about Chinese purchases of Australian farmland), and KLIC is priced at a fair deal in the first place.

Takeaway

CEO Fusen Chen is a materials science expert and KLIC provides capital equipment and tools to semiconductor manufacturers, so it's right up this gentleman's alley. He's clearly more of a salesman than a research scientist as he spent 10 years in a customer-facing position working with Novellus' Asian Clients before embarking on his dealmaking ventures (where the real money is!).

I anticipate a takeover of KLIC, or less likely, a merger, in the next three years.

However this isn't a free lunch for outside public investors like you and me. There is a lot of room for attacks on KLIC's share price as its a thinly traded security, relatively, and it isn't outside the realm of possibility for a concerted attack on the share price to occur in the lead-up to the announcement of an acquisition deal.

So, investors be wise. My approach here is to set a price alert on this company and scoop up shares in the case that they dip to the $12.00 range. This will ensure I am buying substantial operating assets and tangible net worth at a bargain price, rather than today's more "fair" price with its implied 10 times price to earnings ratio for the operating unit.

I've set my alert on this company and intend to provide an update to you when (or if) this company's clear buying opportunity opens up. Ensure you follow me, Faloh Investment, and have checkmarked Real-Time Alerts in order to receive these timing-critical updates.

Disclaimer: This article represents the opinion of the author as of the date of this article. This article is based upon information reasonably available to the author and obtained from public sources that the author believes are reliable. The author does not guarantee the accuracy or completeness of this article. This presentation is the author's interpretation of the information contained in the article. The author may close his investment position at any point in time without providing notice. The author encourages all readers to do their own due diligence. This is not a recommendation to buy or sell a security.

Please click the + icon next to my user name and follow me, Faloh Investment, as I work to keep you informed on further developments as the market continues to present major value opportunities.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

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