Acquisition of Kopin Wireless for $75 million, placing to raise £16.5 million and trading update

10 January 2013

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Acquisition of Kopin Wireless for $75 million, placing to raise £16.5 million and trading update

Cardiff, UK. 10 January 2013. IQE plc (AIM:IQE, "IQE", the “Company” or the "Group"), has agreed to acquire the compound semiconductor (“CS”) epiwafer manufacturing business (“Kopin Wireless”) of Kopin Corporation (“Kopin”) for total consideration of $75 million in cash (the “Acquisition”).
Kopin Wireless is the leading global manufacturer of heterojunction bipolar transistor (“HBT”) materials which are used in power amplifiers (“PA”), a key wireless component in mobile devices. These are produced using Metal Organic Chemical Vapour Deposition (“MOCVD”) epitaxial wafer technology.


Acquisition highlights:
• $60 million payable in cash (“Initial Consideration”) to Kopin on completion of the Acquisition (“Completion”) and $15 million payable in cash to Kopin on the third anniversary of Completion (“Deferred Consideration”)
• Significantly extends IQE’s market share and leadership in wireless industry supply and delivers a market leading position in MOCVD HBT
• Builds substantially on IQE’s risk mitigation strategy in wireless - adding Skyworks Solutions, Inc. (“Skyworks”), which has a long standing supply agreement with Kopin Wireless, as a major customer
• Taiwan manufacturing facility adds to IQE’s global manufacturing footprint and will provide the Group with a strong position to access the growing Asian semiconductor market Attractive terms - earnings enhancing from 2013 financial year onwards Significant cost synergies of at least £7 million per annum expected from 2014


Acquisition financing:
• New banking facility with HSBC for $40 million
• $20 million will be funded from the £16.5 million proceeds of the Placing (defined below)
• Organic cash flow to pay the Deferred Consideration of $15 million payable in January 2016


Placing
• IQE intends to raise approximately £16.5 million through a placing by the Joint Bookrunners, Espirito Santo Investment Bank and Canaccord Genuity Limited, of 56,900,961 new ordinary shares (“Placing Shares”) at a price of 29 pence per Placing Share (the “Placing Price”) (the “Placing”)
• The Placing Shares represent approximately 8.82 per cent. of the Group’s enlarged share capital following Admission (defined below)
• The Placing Price represents a discount of approximately 0.85 per cent. to the closing mid-market price of IQE’s ordinary shares of 29.25 pence on 9 January 2013, being the last practicable date before this announcement
• The books for the Placing will open with immediate effect and are expected to close no later than 4.30 p.m. today


Trading update for 2012
For the year ended 31 December 2012, IQE expects revenue to be in the range of £87 million to £88 million, with earnings before interest, tax, depreciation and amortisation in the range of £16 million to £17 million and net debt as at 31 December 2012 of approximately £15.5 million.


Drew Nelson, CEO of IQE, said:
“This acquisition is our third key transaction in the past 12 months. It significantly enhances our scale and provides us with a highly complementary product line in the wireless space.
“The transaction marks another major step forward in our risk mitigation strategy, whilst significantly boosting our wireless market share. At the same time, it delivers excellent opportunities for additional business growth, particularly in Taiwan and from there into the Asian semiconductor market.
“This transaction will be a key driver of significant earnings and cash generation and also brings substantial financial and scale benefits. This will enable the Group to make significant cost savings from FY14 onwards and further underpins our leading position in the supply of wafers to the global compound semiconductor industry.”

Please click here to download the full press release in PDF format (308kB)

Contacts:
IQE plc (+44 29 2083 9400) Drew Nelson Phil Rasmussen Chris Meadows
Espirito Santo Investment Bank (+44 20 7456 9191) Richard Crawley James Staveley Alastair Maclachlan

Canaccord Genuity (+44 20 7523 8000) Simon Bridges Cameron Duncan
College Hill (+44 20 7457 2020) Adrian Duffield Kay Larsen

 


Note to Editors IQE is the leading global supplier of advanced semiconductor wafers with products that cover a diverse range of applications, supported by an innovative outsourced foundry services portfolio that allows the Group to provide a 'one stop shop' for the wafer needs of the world's leading semiconductor manufacturers.
IQE uses advanced crystal growth technology (epitaxy) to manufacture and supply bespoke semiconductor wafers 'epi-wafers' to the major chip manufacturing companies, who then use these wafers to make the chips which form the key components of virtually all high technology systems. IQE is unique in being able to supply wafers using all of the leading crystal growth technology platforms.
IQE's products are found in many leading-edge consumer, communication, computing and industrial applications, including a complete range of wafer products for the wireless industry, such as mobile handsets and wireless infrastructure, Wi-Fi, WiMAX, base stations, GPS, and satellite communications; optical communications, optical storage (CD, DVD), laser optical mouse, laser printers & photocopiers, thermal imagers, leading-edge medical products, barcode, ultra high brightness LEDs, a variety of advanced silicon based systems and high efficiency concentrator photovoltaic (CPV) solar cells.
The manufacturers of these chips are increasingly seeking to outsource wafer production to specialist foundries such as IQE in order to reduce overall wafer costs and accelerate time to market.
IQE also provides bespoke R&D services to deliver customised materials for specific applications and offers specialist technical staff to manufacture to specification either at its own facilities or on the customer's own sites. The Group is also able to leverage its global purchasing volumes to reduce the cost of raw materials. In this way IQE's outsourced services, provide compelling benefits in terms of flexibility and predictability of cost, thereby significantly reducing operating risk.
IQE operates a number of global manufacturing and R&D facilities: Cardiff, Milton Keynes and Bath in the United Kingdom; Bethlehem, Pennsylvania, Somerset, New Jersey and Spokane, Washington in the USA; and Singapore. The Group also has 11 sales offices located in major economic centres worldwide.