Etec Systems takes off on Applied Materials deal

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Shares of Etec Systems (Nasdaq: ETEC) surged up 24 1/8, or 48 percent, to a 52-week high of 74 Thursday after Applied Materials (Nasdaq: AMAT) said it would buy the company for $1.8 billion in stock.

Under terms of the deal, Applied will issue 0.649 shares of its stock for every share of Etec.

Etec makes semiconductor equipment that produce masks for printing circuit patterns on chip manufacturing wafers. It also makes imaging systems used for producing electronic interconnects.

On Thursday, Applied officials said its expects 1 to 2 percent dilution to its fiscal 2000 earnings.

CFO Joe Bronson told analysts the deal will be accretive to earnings beginning in fiscal year 2001, which begins in November 2000.

"We expect 1 to 2 percent dilution in fiscal 2000, but we expect it to be accretive thereafter," Bronson told analysts.

Applied will also absorb an unspecified one-time charge to cover merger-related expenses in the quarter in which the deal closes. He said the merger could be completed by April, pending regulatory and shareholder approvals.

First Call consensus expects Applied Materials to earn $3.32 a share in fiscal 2000.

Etec Systems has about a 70 percent share of the $300 million market for photomask-making equipment, which is used to print circuit patterns onto silicon wafers. The market is expected to grow to about $700 million in 2002, according to market research firm VLSI Research Inc. of San Jose, Calif..

The deal, to be accounted as a tax-free pooling of interests, must be approved by Etec shareholders and government regulators.

Etec lost $700,000 on revenue of $56.7 million, with gross margin of 39.8 percent, in its fiscal first quarter ended Oct. 31. The company in fiscal 1999 earned $1 million on sales of $237.2 million, compared to a profit of $46.8 million on revenue of $288.3 million in fiscal 1998.

Applied shares fell 5 1/16 to 122 Thursday.