Shares of Versum Materials (VSM) gained nearly 20% today after the company announced it had agreed to merge with rival Entegris (ENTG -3.81%). The combined company would be worth $9 billion and be better equipped to respond to weakening market fundamentals in the semiconductor industry.
For every share of Versum Materials held, shareholders will receive 1.12 shares of Entegris, which is equivalent to about $35 per share based on the closing price the day before the merger was announced. They'll end up with 47.5% of the combined company after the dust settles.
As of 11:47 a.m. EST, Versum Materials stock had settled to a 16.7% gain. Shares of Entegris were up 7.1%.
Injecting more financial flexibility into a business wading through a tough semiconductor market is top of mind for investors right now. Shares of Versum Materials declined by 27% and shares of Entegris lost 27% in 2018.
To be fair, Versum Materials actually delivered a strong year of operations for the fiscal year ended Sept. 30, 2018. In the final quarter of fiscal 2018, the business reported its sixth consecutive quarter of record revenue with healthy full-year EBITDA growth to boot. That didn't stop analysts from sending shares lower, but they seem to be looking forward to the expected advantages of the $9 billion company post-merger.
The combined company would have boasted roughly $3 billion in sales and $1 billion in adjusted EBITDA in calendar year 2018. Assuming the merger clears regulatory procedures, the combined company expects to save about $75 million in annual expenses and boast a net leverage ratio of just 1.1 times.
The merger is expected to close in the second half of 2019. Until that occurs, investors will need to keep an eye on the health and progress of both businesses as well as any curveballs that might be thrown by regulators, who have to approve the deal.
Check out the latest Versum Materials earnings call transcript.