Hoya (OTC BB: HOCPY.PK) draws little attention from U.S. investor, but perhaps that will change down the road. The company has done quite well during the last few years, now sporting a market cap of more than $16 billion.

Today, Hoya announced that it will merge with Pentax (OTC BB: PXCPF.PK). The merger unites two businesses with a focus on many different types of optical products, and it should also provide vertical integration in the area of optical lenses. In addition, both bring complementary medical diagnostic and treatment product offerings to the table. When the merger is finalized next year, the combined company will be known as Hoya Pentax HD.

Shareholders of Pentax will receive 0.158 shares of Hoya as a part of the merger, which is expected to close late in 2007. The agreement currently values Pentax at approximately $750 million (88.2 billion yen). On a trailing-12-month basis, the deal looks a bit rich. Pentax has earned about $0.06 per share (7 yen), but these results contain a number of restructuring charges, as do the previous year's results. Backing these charges out shows a more consistent performance from Pentax, one in which the company's medical and optical component business profitability is being obscured by the losses in its imaging business.

Cameras and digital cameras, for which Pentax is perhaps best known, are also part of the deal. However, like Olympus, Pentax has found that the greatest areas for profitable growth are in areas of the optical business where there is less competition. When combined, Hoya Pentax HD plans to leave the fiercely competitive consumer digital camera business primarily to Canon (NYSE:CAJ), Sony (NYSE:SNE), Matsushita (NYSE:MC), Eastman Kodak (NYSE:EK), and other companies with strong established positions. The real potential here is in combining the two companies' medical product and optics businesses.

Having performed so well the last few years, Hoya's shares aren't cheap, which is why I'm glad to see the company making the acquisition in stock instead of cash. Hoya and Pentax's reasoning for doing the deal entirely in stock may have been different, but on the surface, an all-stock deal looks wise on Hoya's part. As the next couple of years unfold, it will be interesting to see how well these two businesses can merge their product lines and product development activities to build what should be a very strong business.

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At the time of publication Nathan Parmelee had no financial position in any of the companies mentioned.