Agilent Exits Semis

By Ed Sperling and Marilou Giammona -- Electronic News, 8/15/2005

Agilent Technologies Inc. today announced its plans to exit the semiconductor business. The company laid out a series of actions that will bring it back to its roots as a pure-play global measurement powerhouse, which, Agilent believes, will create tangible value for its shareholders.

The problem, according to Jack Trautman, president of Agilent’s automated test group, was that most investors were lumping Agilent together with semiconductor stocks even though that was a small portion of the company’s business. That made Agilent’s stock price excessively volatile, and he said it never showed the kind of growth it should have for test equipment.

“Agilent has been undervalued for a long time,” Trautman said. “It looked as if the semiconductor business was the tail wagging the dog.”

He noted that Agilent did a detailed assessment as to whether shedding its semiconductor business would affect the overall company-particularly the synergy between various groups. He said the company decided it could source semiconductors just as effectively from foundries in the future.

At the top of the list is Agilent’s agreement to divest its semiconductor products segment to private equity firms Kohlberg Kravis Roberts & Co. and Silver Lake Partners for $2.66 billion. Additionally, Agilent will sell its stake in Lumileds to Royal Philips Electronics for $950 million plus repayment of $50 million of debt from Lumileds.

The company also plans to spin off its SoC and memory test businesses, for an as-yet undisclosed amount, as soon as practical in 2006.

Agilent will return the cash proceeds of the divestitures to its owners through a $4 billion share repurchase program to commence immediately, the company said. Agilent also announced it intent to call its $1.15 billion convertible debenture, which potentially will reduce its outstanding shares by 36 million.

"These actions enable Agilent to focus exclusively on realizing its full potential as the world's premier measurement company, serving global customers as the largest, most innovative and best-positioned entity in the world,” Agilent President and CEO Bill Sullivan said in a statement. “It has become increasingly clear that investors also prefer this exclusive focus on the $40 billion measurement market. Returning the proceeds of these divestitures via share repurchases demonstrates Agilent's commitment to realizing superior value for our owners as well as our customers."

As part of its repositioning as a pure-play measurement company, Agilent expects to reduce its global infrastructure costs by $450 million and infrastructure-related employment by about 1,300 jobs. This reduction will be accomplished through a combination of employee transfers to the divestiture and spin-off, and attrition. The company expects this restructuring to be largely completed by the middle of fiscal 2006. The roughly $200 million implementation cost will be offset by the proceeds of property and other asset sales, the company estimates.

Agilent expects the divestitures to be completed by the end of its fiscal year, Oct. 31, 2005, subject to closing conditions, including governmental and regulatory approvals.