Citigroup Analyst Comments on Novellus Systems (NVLS) Takeover Chatter

Citigroup analyst, Timothy Arcuri, comments on Novellus Systems (Nasdaq: NVLS): "While a private equity deal here can't be ruled out, necessary hurdle rates for returns remain difficult to achieve based on our work. Rather, we feel an acquisition by a peer such as Tokyo Electron - while risky - is more likely at this point and we now feel the probability of NVLS being acquired in the next 1-2Qs is at least 50%."

Arcuri continued, "While a deal would clearly move the stock higher, absent this factor, the fundamental margin story here has played out and shares are now under some pressure in core businesses such as CVD. We thus maintain Hold, $32 price target."

Stifel Nicolaus downgrades Novellus Systems (NVLS) to Sell, Says Sale is Unlikely

Stifel Nicolaus downgrades Novellus Systems (Nasdaq: NVLS) from Hold to Sell, following recent speculation of a potential takeout of the company and the appreciation in its stock price.

Analyst Patrick J. Ho said, "while we have no additional insight, we do not see a potential takeout of the company occurring in the near term (although we do not want to discount the possibility of a LBO scenario, but also consider this somewhat unlikely near term). Ho also said, "even if a deal were to occur, we do not believe at current prices that there is any dramatic premium left in terms of valuation, particularly when compared to other recent semi cap deals."

Citigroup Analysts Comments on Novellus Systems Takeover Rumors

Citigroup analyst, Timothy Arcuri, makes comments on Novellus Systems (Nasdaq: NVLS): "NVLS traded up approx. 8% today as our checks suggest a growing view among buyside investors that NVLS is a potential M&A target - either for private equity or a larger competitor. Recent cancellation of attendance at two conferences (LEH and CS) has fueled this view."

"While our analysis of financial and strategic fits indicates TEL (#2 equipment supplier) as a plausible consolidator in a competitive takeover, we view a TEL/NVLS deal as being unlikely given cross-border M&A has historically proven difficult + TEL's success at integrating acquisitions in the past is mixed.

With respect to private equity interest, our work (in conjunction w/ input from Citi's risk arb team) indicates a NVLS deal under typical debt/equity assumptions and a ~25% equity premium would drive only ~11% IRR, or well below the typical 20-30% hurdle rate for PE deals - even in this environment."