Japan's Hoya snaps up Pentax for $770 million

 

Hoya, a Japanese maker of optical glass, plans to buy Pentax for about 91 billion yen ($770 million) in shares, gaining access to profitable markets such as medical gear and optical lenses.

The deal, announced on Thursday, will take Hoya into business areas it would otherwise have been difficult to enter or develop itself, such as endoscopes, advanced digital cameras and lenses used in DVD players, where it will take on rivals such as Olympus and Fujifilm Holdings.

"This is a positive surprise," said Hisashi Moriyama, an analyst at JPMorgan Chase in Tokyo. "It's also positive for Hoya because it will help it enter oligopolistic markets with high-profit margins."

It will be one of the biggest deals in Japan's precision equipment industry since a merger between Konica and Minolta in 2003, and it also eases concerns over possible takeovers of technology companies such as Pentax that have patents and experienced engineers.

Hoya will swap 0.158 shares for each Pentax share, giving a 10.5 percent premium based on Wednesday's closing price, or a valuation of 709.4 yen per Pentax share.

The companies plan to complete the integration on October 1, 2007, and the new company will be named Hoya Pentax HD. It is set to be headed by Hoya President Hiroshi Suzuki.

Based on the companies' earnings last year, the new firm would have combined annual sales of about 500 billion yen and operate like a holding company with existing Pentax units positioned under it.

Hoya, which is more than half-owned by foreigners, is said to control about 85 percent of the global market for mass blanks, used in chipmaking, and more than half of the LCD photomask market. Photomasks are used to make liquid crystal displays.

As a market leader in these key materials, and with solid earnings growth, Hoya has been a favorite pick among investors. Its market value now comes to $16.6 billion, a Goliath compared with Pentax's $745.45.

But Pentax, a pioneer in cameras used by professionals, is also a major player in other profitable industries, such as optical lenses and medical equipment. Pentax President Fumio Urano will become chairman of the new company's board.

"The most attractive part about Pentax was its medical business," Hoya's Suzuki said during a press conference. "We see this as a friendly and equal merger."

The market for endoscopes--small cameras used to look at internal organs--is led by Olympus, which has a global share of about 70 percent. But Pentax and Fujifilm, the only other makers, have been increasing their efforts to expand their market share.

Trading in Pentax and Hoya shares was halted on the Tokyo Stock Exchange after the Nihon Keizai business daily reported the deal.

Prior to the halt, Pentax shares rose 7.5 percent, and Hoya shares rose 0.5 percent, both outperforming the benchmark Nikkei average, which rose 0.22 percent.

At the latest prices, the deal values Pentax at $6.04 a share, or $770.86 million in all. That equates to about 33 times forecast earnings, a premium to the sector average of 25, according to Reuters Estimates.

Hoya was advised by UBS Securities Japan, while Pentax was advised by Morgan Stanley Japan Securities.

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