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ASM International NV
April 2017
[ 1 ]
"Shareholder Value Creation is Foremost"
“I can guarantee you that [the stake in ASMPT] is something that we monitor and review continually, simply as part of our complete strategic review of the company because, naturally, also shareholder value creation is foremost, and the PT stake is a part of that. And we regularly take a look at this.”
Chuck del Prado, 2014 AGM
I. Introduction
[ 3 ]
Overview of Eminence Capital
■ Eminence Capital, founded in 1999 by Ricky Sandler, is a global asset management firm with $6.5 billion in assets under management primarily invested in publicly traded equity securities
■ We invest with a "quality value" based framework combining bottom-up, fundamental company and industry due diligence with detailed financial analysis to identify companies that fit our investment criteria
■ We are long-term investors with a typical investment horizon for our long investments of multiple years
■ Eminence is currently the second-largest shareholder in ASM International (ASMI) owning ~5.7 million shares (9.6% of outstanding voting shares) with a current market value of ~$300 million1
■ We have been ASMI shareholders for approximately 3.5 years
1. Current market value assumes an ASMI share price of €49.80 as of market close on 23rd March 2017
[ 4 ]
Why We Are Invested in ASMI
■ SECTOR − FAVORABLE SECULAR INDUSTRY FORCES: the semiconductor capital equipment market is a
cyclical growth industry with secularly rising capital intensity driving customer spend
− FAVORABLE COMPETITIVE DYNAMICS: each step in the manufacturing process is its own unique market where competitors sell based on technology rather than price
■ BUSINESS − ATTRACTIVE CORE BUSINESS: Atomic Layer Deposition (ALD) should be a share gaining
process within the overall industry for a multi-year period and ASMI is the clear leader in single wafer ALD
■ VALUATION − UNDERVALUED: ASMI's complex holding structure leaves the company trading at a significant
discount to peers despite its favorable competitive position and outlook
[ 5 ]
Strategic Benefits of an ASMPT Divestiture
■ Strategic decisions are more focused and aligned − ASMI’s Front End business and ASMPT compete in different markets and should pursue their
own independent strategic paths
− With customers and competitors consolidating, pursuing strategic combinations as a buyer or seller takes on heightened importance
− The complex structure hinders any significant independent action
■ More effective capital allocation post separation − Under the current corporate structure, the value creation generated through stock buybacks of
an undervalued Front End business is diluted by the simultaneous repurchase of the ASMPT stake (representing ~70% of ASMI’s market cap), which we believe is currently overvalued
■ Management incentives are more aligned with driving business performance post separation
[ 6 ]
Financial Benefits of an ASMPT Divestiture
■ Based on comparable peer trading multiples, ASMI shareholders could see upside of ~40%1 by selling all or a significant portion of the ASMPT stake
■ By reducing the stake in ASMPT below 30% of shares outstanding, ASMI could also attract strategic interest, which would likely enhance this trading upside case − The Continuity Foundation is still in place to protect against hostile or unwanted takeover
attempts
■ ASMI shareholders would no longer be subject to significant ASMPT stock price risk
■ Historically, business separations have led to better operating and stock market performance for both companies
1. Upside range depends on block sale discount and tax implications of divesting the ASMPT stake
II. Current Corporate Structure Has Caused Sustained Front End Undervaluation
[ 8 ]
2009 – 2017 Track Record Not As Impressive As Management Claims
January 1, 2009 March 23, 2017 $ Change
ASMI Market Cap $312mm $3,278mm $2,966mm
Value of ASMPT Stake ($657mm) ($2,204mm) ($1,547mm)
Net Debt/(Cash) $72mm1 ($411mm) ($483mm)
Implied Front End Value ($274mm) $663mm $936mm
Key Findings
Source: CapitalIQ, Company filings
■ Less than 33% of ASMI’s stock price appreciation was due to an increase in Front End value
■ Implied Front End value of $663mm is still below AMAT / Francisco Partners’ joint offer from 2008 of up to $800mm cash
Note: Financials converted to USD as of 3/23/17 using spot rates of 0.92 EUR / USD and 7.77 KHD / USD 1. Net debt balance for January 1, 2009 includes impact of deconsolidating ASMPT cash from ASMI balance sheet due to 12% stake being sold
[ 9 ]
The Implied Front End Enterprise Value Is Below AMAT's Rejected Offer Price from 2008 – Nearly a Decade Later
Implied Enterprise Value of ASM International Front End ($ in millions)
Despite actions to date, the Front End continues to be undervalued. It is time for management to take the next step.
($1,200)
($800)
($400)
$0
$400
$800
$1,200
$1,600
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
March 14, 2013: ASMI sells 12%
of ASMPT
June 20, 2008: ASMI rejects AMAT / Francisco
Partners’ joint offer for the Front End business for up to $800mm cash
March 2, 2017: “We are also somewhat surprised that there is not a stronger recognition in the market for the Front-end results based on the track record of the company.”
– Chuck del Prado, Q4’16 Earnings Call
Source: Capital IQ as of March 23, 2017 Note: Financials converted to USD as of 3/23/17 using spot rates of 0.92 EUR / USD and 7.77 HKD / USD
Value on 3/23 = $663mm
[ 10 ]
Recent Stock Price Performance Driven Entirely by ASMPT
ASM International Enterprise Value Breakdown
Source: Capital IQ as of March 23, 2017 Note: Financials converted to USD as of 3/23/17 using spot rates of 0.92 EUR / USD and 7.77 HKD / USD
($ in millions)
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17
ASM PT 39.2% Stake ASM International Front-End
After an initial re-rating as a result of a partial sale of ASMPT, the Front End value has stalled for the last two years.
[ 11 ]
The Implied Front End Stock Price Has Materially Lagged Peers
Implied Front End Stock Price Versus Peer Group Since March 1, 2015
Source: Capital IQ as of March 23, 2017 Note: ASMI Implied Front End share price converted to USD as of 3/23/17 using spot rate of 0.92 EUR / USD
(Peers index rebased to ASMI Implied Front End share price on 03/02/15)
-6%
+35%
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17
ASMI Implied Front End Peers (Tokyo Electron, Lam Research, Applied Materials, ASML, KLA-Tencor)
III. The Value Creation Opportunity
[ 13 ]
Parameter Selected Range Metric1 Implied Front End EV
CY18E Sales 3.0x - 3.5x $767mm $2.3 - $2.7bn
CY18E EBITDA 10.0x - 12.0x $194mm $1.9 - $2.3bn
CY18E EBIT 11.0x - 13.0x $137mm $1.5 - $1.8bn
Illustrative Mean $2.09bn
Current Implied Front End EV $0.66bn
Upside to Current Implied EV $1.43bn
Front End Valuation Materially Trails Its Peers
EV / CY2018E Revenue
Source: Company filings, Capital IQ, Thomson estimates, FactSet estimates Note: Financials converted to USD as of 3/23/17 using spot rate of 0.92 EUR / USD 1. Represents financials for ASM International excluding ASM PT; figures per Thomson consensus
Current Implied Valuation
EV / CY2018E EBITDA
EV / CY2018E EBIT
Peer Valuation Ranges
Average: 3.33x
Average: 10.9x
Average: 12.1x
Date 03/23/17 ($ in millions )
Market Cap. $3,277.7 Debt 0.0 Cash & Equivalents (410.7)
Enterprise Value $2,867.0
Market Value of 39.2% of ASMPT ($2,204.5) Implied Enterprise Value of ASM Front End $662.6
4.8x
19.6x 11.5x 11.3x 9.4x 8.7x
0.0x
10.0x
20.0x
30.0x
ASMInternational
ASML KLA-Tencor
AppliedMaterials
LamResearch
TEL
3.4x
16.9x 11.7x 10.0x 8.3x 7.7x
0.0x5.0x
10.0x15.0x20.0x
ASMInternational
ASML KLA-Tencor
AppliedMaterials
LamResearch
TEL
0.86x
5.37x 4.16x
2.91x 2.39x 1.81x
0.0x
2.0x
4.0x
6.0x
ASMInternational
ASML KLA-Tencor
AppliedMaterials
LamResearch
TEL
[ 14 ]
$1.4bn of Value Creation Potential Post Divestiture
1. Valuation as of 3/23/17 2. ASMI standalone valuation based on ASMI 2018E sales of $767mm; EBITDA of $194mm; EBIT of $137mm and Front End peer multiples 3. Assumes an 8% discount on 33% of the ASMPT stake
$2,165 / $35.72
$2,092 / $34.52
$411 / $6.78
$4,668 / $77.01
$4,611 / $76.07
$3,278 / $54.08
Market Value ofASMPT Stake
Front End EV Net CashAdj.
ASMI Totalb/f Frictional
Costs
FrictionCosts
ASMI Total Value CurrentMarket Cap
$2,204mm $36.37/sh
$2,092mm $34.52/sh
$411mm $6.78/sh
$4,707mm $77.67/sh
($58)mm $0.96/sh 3
$4,649mm $76.71/sh
$3,278mm $54.08/sh
1 2
~$1,372mm / $22.63 per share of value creation
- ~42% upside to current market cap - Over 200% upside to Front End EV
IV. The ASMPT Stake Creates Little to No Benefits Yet Introduces Significant Risk for
ASMI Shareholders
[ 16 ]
■ No synergies between the two companies
− No physical overlap on locations or co-location of facilities/research
− No customer overlap of any significance as confirmed by both companies
− Management acknowledges the lack of synergies
• “…If you were to ask me how substantial those synergies are now or likely to be in the very short term in our profit and loss account, then that is quite limited.” 2014 AGM
■ By selling all or a portion of the ASMPT stake and holding more cash, ASMI would maintain the “financial strength and stability” it deems important to customers
■ Management has provided zero evidence of how the financial holding in ASMPT “provides ASMI with a stronger industrial presence”
■ The stake acts as an improper permanent “poison pill” to potential acquirers
− Because ASMI owns greater than 30% of ASMPT, a potential acquirer of ASMI would also have to make a takeover offer for ASMPT under the Hong Kong takeover code
The ASMPT Stake Creates Little to No Benefits
[ 17 ]
Trading Comparables
ASMI Shareholders Bear Significant Risk Given the Premium Valuation of ASMPT Versus Peers
ASMPT represents ~70% of the total value of ASMI’s stock. By not selling at these valuations ASMI shareholders are taking on significant stock price risk in a business with limited visibility and little or no influence.
Source: Capital IQ, Thomson estimates
($ in millions, except per share amounts) Trading Multiples As of 03/23/17 Stock % of 52 Market Enterprise TEV / EBITDA P / E Company Name Price Week High Value Value CY17E CY18E CY17E CY18E Back-End Teradyne $30.55 97.9% $6,136 $5,310 11.4x 9.9x 18.4x 16.2x Disco 153.54 92.7% 5,543 4,872 11.8x 10.7x 22.8x 18.6x BE Semiconductor 41.57 99.5% 1,546 1,365 12.6x 12.0x 18.9x 17.4x Kulicke and Soffa 20.25 95.4% 1,438 876 7.6x 6.0x 18.7x 14.8x
Average 96.4% 10.8x 9.7x 19.7x 16.8x
ASMPT $13.78 98.7% 5,624 5,522 13.5x 12.3x 21.5x 19.6x
V. ASMI’s Front End Business Can and Should Stand Alone
[ 19 ]
$26 $72
$122 $159 $135 $169
$194 $217
7%
15%
21% 22% 21%
24% 25% 26%
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E
EBITDA EBITDA Margin (pre-exceptionals) %
Front End Business is Strong and Self-Sustaining
5 Years of Strong Revenue Growth and Improving Gross Margin
EBITDA and EBITDA Margin ($ in millions)
Source: Company Information, Wall Street estimates
($ in millions)
$402 $491 $593 $727 $649 $704 $767 $845
34% 39%
43% 44% 45% 44% 44% 46%
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E
Revenue Gross Margin (pre-exceptionals) %
In addition, the Front End has $400mm+ of cash on the balance sheet and is projected to generate $100mm+ of free cash flow annually.
[ 20 ]
■ Lam Research and Varian Semiconductor provide historical precedents of smaller companies with market leading technology that created value in the semicap industry − In 2003, both companies had a smaller revenue base than ASMI’s Front End business today
Technology Matters More Than Scale in This Industry
2003 2016 2003 – 2016 CAGR
Revenue $653mm $6,626mm 20%
EBITDA $49mm $1,685mm 31%
Market Capitalization1 $2,452mm $13,637mm 14%
Share (Etch) 30% 48% 18% cumulative gain
Lam Research
2003 20112 2003 – 2011 CAGR
Revenue $328mm $963mm 14%
EBITDA $27mm $303mm 35%
Market Capitalization1 $1,078mm $3,228mm 15%
Share (Implant) 31% 72% 41% cumulative gain
Varian Semiconductor
Source: CapitalIQ as of 3/23/2017 1. Represents yearly averages 2. Varian was acquired in 2011
VI. Recommendations
[ 22 ]
■ Given the significant and persistent undervaluation of the Front End business we recommend a split of ASMI from ASMPT
■ Eminence believes a multi-year plan to exit the ASMPT stake via multiple block trades creates the most long-term shareholder value
■ The first step should be a block trade of 33% of the ASMPT stake combined with a special dividend paid to shareholders which would be free from corporate level tax
Recommendations
Appendix
[ 24 ]
($ in millions, except per share amounts) Trading Multiples LT EPSAs of 03/23/17 Stock % of 52 Market Enterprise TEV / Revenue TEV / EBITDA P / E GrowthCompany Name Price Week High Value Value CY17E CY18E CY17E CY18E CY17E CY18E Rate
Front-EndASML $130.54 99.7% $52,791 $52,030 6.1x 5.4x 20.0x 16.9x 29.7x 23.8x 18.9%Applied Materials 38.85 97.6% 41,951 41,129 3.1x 2.9x 11.3x 10.0x 14.8x 13.2x 21.6%Lam Research 125.35 98.2% 23,224 20,134 2.5x 2.4x 8.8x 8.3x 13.5x 12.7x 15.4%TEL 103.09 94.8% 16,945 14,436 1.8x 1.8x 8.3x 7.7x 14.9x 13.8x 17.3%KLA-Tencor 95.23 98.8% 14,925 15,312 4.3x 4.2x 11.2x 11.7x 16.1x 15.2x 12.0%
Average 97.8% 3.6x 3.3x 11.9x 10.9x 17.8x 15.8x 17.1%Median 98.2% 3.1x 2.9x 11.2x 10.0x 14.9x 13.8x 17.3%
Trading Comparables
Front End Peer Valuation
Source: Capital IQ, Thomson estimates
[ 25 ]
Disclaimer
THIS PRESENTATION CONTAINS CERTAIN ANALYSES AND CONCLUSIONS OF EMINENCE CAPITAL, LP (“EMINENCE”) AS OF THE DATE HEREOF, ANY OF WHICH MAY CHANGE AT ANY TIME FOR A VARIETY OF REASONS, INCLUDING THE IMPACT OF FUTURE EVENTS, PUBLICATION OF ADDITIONAL INFORMATION, OR NEW ANALYSES. EMINENCE HAS NO OBLIGATION TO UPDATE THE INFORMATION, ANALYSES, AND/OR CONCLUSIONS CONTAINED HEREIN UPON ANY SUCH CHANGE. FURTHER, THE ANALYSES AND CONCLUSIONS CONTAINED HEREIN ARE SUBJECT TO SIGNIFICANT MACROECONOMIC, COMPETITIVE, AND OTHER UNCERTAINTIES. OTHERS MAY DISAGREE WITH THE ANALYSES AND CONCLUSIONS PRESENTED HEREIN AND/OR MAY HAVE NON-PUBLIC INFORMATION WHICH, IF KNOWN TO EMINENCE, MAY HAVE IMPACTED EMINENCE’S ANALYSES AND CONCLUSIONS. THIS PRESENTATION DOES NOT CONTAIN INVESTMENT ADVICE AND IS NOT A RECOMMENDATION TO PURCHASE OR SELL ANY SECURITY. WHILE ALL INFORMATION CONTAINED IN THIS PRESENTATION IS BELIEVED TO BE ACCURATE, EMINENCE MAKES NO EXPRESS WARRANTY AS TO ITS COMPLETENESS OR ACCURACY AND DISCLAIMS ANY LIABILITY WITH RESPECT THERETO. EMINENCE MAY CHANGE ITS POSITION IN ANY SECURITIES REFERENCED HEREIN FOR ANY REASON OR NO REASON AND AT ANYTIME, AND HAS NO OBLIGATION TO PROVIDE ANY UPDATES OR CHANGES TO THE INFORMATION CONTAINED HEREIN.
THIS PRESENTATION IS NOT INTENDED AS A MARKETING DOCUMENT OF EMINENCE. IT IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED OR USED AS AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, INTERESTS IN ANY FUND MANAGED BY EMINENCE. NO OFFER OR SOLICITATION MAY BE MADE PRIOR TO THE DELIVERY OF A DEFINITIVE PRIVATE PLACEMENT MEMORANDUM, WHICH WILL CONTAIN ADDITIONAL INFORMATION ABOUT THE FUND, INCLUDING DISCLOSURES RELATING TO RISK FACTORS AND CONFLICTS OF INTEREST. ALL INVESTMENTS INVOLVE RISK, INCLUDING THE RISK OF LOSS OF SOME OR ALL OF THE INVESTMENT.