Notice of Commencement of Tender Offer for the Shares of PENTAX Corporation HOYA Corporation (the “Company” or the “Tender Offeror”) announces that it determined in accordance with a decision of the representative executive officer dated July 2, 2007 to acquire (1) the common stock of PENTAX Corporation (Code: 7750, the first section of the Tokyo Stock Exchange; the “Target” or “PENTAX”), (2) the yen-denominated Convertible Bonds with Share Subscription Warrants (shinkabu yoyaku ken) issued in accordance with a resolution of the Target’s board of directors’ meeting held on October 14, 2003 (the “PENTAX Bonds with Share Subscription Warrants”), and (3) PENTAX First Series Share Subscription Warrants (shinkabu yoyaku ken) (the “PENTAX Share Subscription Warrants”) which were issued in accordance with a resolution of the Target’s board of directors’ meeting held on May 23, 2005 and an approval of the Target’s annual general meeting of shareholders held on June 24, 2005, through the tender offer (the “Tender Offer”). If the Tender Offeror fails to acquire all shares of the Target’s common stock by the Tender Offer, the Tender Offeror contemplates causing the Target to be its wholly owned subsidiary by any appropriate transaction.
1. Purpose of the Tender Offer
(1) Background of the Tender Offer
The Tender Offeror started as an optical glass manufacturer. Since its inception, the Tender Offeror has been diversifying its business by leveraging its optical material technologies and precision processing technologies. The Tender Offeror has successfully built a global niche market through aggressive technological innovation and has established leadership in its areas of expertise, resulting in strong earnings. In the information technology area, the Tender Offeror has maintained a leading position globally for its semiconductor-related mask blanks and glass disk substrates for hard disk drives, and it is positioned as one of the leading manufacturers in optical glass and lenses. The Tender Offeror has also established a leading position in the eye care area, including eyeglass lenses.
The Tender Offeror continues to cultivate new business areas, in particular medical-related area as a key factor for further growth which are positioned as mid- to long term core growth drivers, and has initiated the global business development of intraocular lenses used for surgical treatment of cataracts. The expertise of the Target stems from its long-accumulated know-how attained through the development and manufacture of cameras and lenses. The Target has successfully adopted its optical design and image processing technology for use in a variety of product areas and has developed businesses based on this optical technology. In the life care business, the Target has made early progress in developing a leading global position in the production of endoscopes, and it is also marketing globally various other products such as medical accessories and new ceramics for bone grafts. In the optical components business, the Target has leveraged its competitive edge in advanced optical technologies, where its major products include digital camera modules and DVD/CD convertible pickup lenses and has also built a strong global brand of digital cameras in its imaging system division.
As to the adoption of optical technologies to the medical area, the Tender Offeror and the Target have been developing advanced medical products such as endoscope diagnostics, minimally invasive surgical technologies and bionic materials including new ceramics and intraocular lenses. While the market in this area is expanding globally with further growth expected, competition has also been increasing globally. In order to continue delivering growth in this market, both companies recognize that it is critical to establish advantages in technology through research and development and mergers and acquisition activities and to build a global marketing system under which activities to spread technology and methods of new diagnosis and treatment will be performed together with patients and medical experts. Large investments would be required to achieve such product development and global marketing activities. The Tender Offeror believes that it would be possible to accelerate the growth of the Tender Offeror and the Target in this area if the Tender Offeror’s ample cash flow is selectively appropriated to this area and the Tender Offeror offers its know-how attained from its global development of the eye care business to the Target. Significant structural changes have occurred in optical equipment and related materials since the emergence of digital cameras.
Competitors in Asia have grown rapidly and are expected to continue gaining market share through low price campaigns and increasing the added value of their products. Along with existing optical manufacturers, home appliance makers have also entered the digital camera market, further intensifying competition in this area. In order to maintain growth in this environment, it is necessary to be distinguished from competitors by reinforcing cost competitiveness by lowering production costs and by increasing added value focusing on technologies. To that end, a qualitative transformation of our business structure would be required. In optical equipment and related materials, we believe that, if the Target’s optical design and processing technologies and the Tender Offeror’s optical material development and precision processing technologies and mass production capability of optical lenses are vertically integrated, we could become the only optical manufacturer in the global market having the ability of creating new optical module system products.
The Tender Offeror and the Target have reached a common understanding as described above after several discussions over a long-term period since spring 2006. Both companies have recognized the need to integrate, as a best business partner, each other’s respective strengths in various areas to build a firm business structure and accelerate business growth by establishing a system which would allow us to allocate management resources focusing on strategic areas. On December 21, 2006, the Tender Offeror and the Target executed the Basic Understanding Regarding Merger (the “Basic Understanding”).
Since then, the Tender Offeror and the Target held discussions aiming to enter into the definitive merger agreement in early April 2007. Since the execution of the Basic Understanding through early April 2007, both companies, with participation of their respective representatives and responsible directors as well as many members of mainly the headquarter division, proceeded preparations necessary for integration and examined the organizational operation after integration. The Tender Offeror understands that the employees of both companies did not have any differences of understanding in any material respect with respect to the preparations for the integration which might impede the integration as they proceeded with the discussions. However, the Tender Offeror was informed by the Target that the Target would have to abandon the planned merger as a result of comprehensively considering both internal and external conditions including shareholders. As stated in the Tender Offeror’s press release dated April 23, 2007 entitled “Regarding Continuation of Discussion on Takeover Offer to PENTAX,” the Tender Offeror found that it would be practically difficult to achieve management integration through the merger scheduled on October 1, 2007 as contemplated in the Basic Understanding considering the circumstances of certain shareholders of the Target as well as the existing agreements between the Target and the third parties. Under such circumstances, the Tender Offeror officially proposed to the Target to begin discussion regarding a tender offer in which the Tender Offeror purchases all shares of the Target for cash as an alternative measure in order to achieve management integration between both companies in the manner of the tender offer, pursuant to the provisions of the Basic Understanding prescribing that, if the management integration through the merger becomes practically difficult, both companies shall promptly and faithfully discuss any alternative for management integration based on the purpose and spirit set forth in the Basic Understanding. Both companies already examined such tender offer and continued to discuss it under the Basic Understanding.
As a result, the Tender Offeror and the Target reached an agreement on May 31, 2007 as follows: (a) they confirm their understanding that the management integration of both companies would contribute to the increase of the corporate value of the Tender Offeror and the Target, as understood at the time of the execution of the Basic Understanding; (b) with respect to the manner of the integration of management, first the Tender Offeror will conduct the tender offer for all shares of the Target; and (c) thereafter, considering any effect on taxes or accounting to be considered in connection with the integration between the Tender Offeror and the Target, the determination of the applicability of the ongoing disclosure requirements under the United States Securities Act, and existing agreements with third parties, the Tender Offeror will become an wholly owning parent company of the Target through a share exchange or other appropriate business reorganization transaction following the Tender Offer so that the management of both companies will be integrated. Subsequently, on June 15, 2007, the Tender Offeror and the Target agreed to modify a part of the terms of the tender offer determined by the above-mentioned agreement, such as the timing of the commencement of the tender offer, the minimum number of shares intended to be purchased and the purchase price of the Target’s common stock.
(2) Purpose of the Tender Offer
The ultimate purpose of the Tender Offeror is to completely integrate the management of the Tender Offeror and the Target through the Tender Offer. The Tender Offeror expects to enhance corporate value by utilizing the two companies’ strength in optical and precision processing technologies to develop appealing products and provide them to a broader customer base. Following the Management Integration, based on the common core technological foundation in optics, imaging and materials, both companies will be able to optimize their business portfolios, focusing on the life care, optics, information technology, eye care and imaging systems areas. Expected stable revenues from the information technology and eye care areas will support the life care area in achieving strategic growth. In addition, vertical integration in the optics field will lead to qualitative structural reform and further strengthen competitiveness.
The businesses of the new company group after the integration will be operated in accordance with the basic policies as follows:
(i) Life care area (endoscopes, medical accessories, new ceramics, and intraocular lenses): Life care is positioned as a strategic growth area. The Tender Offeror and the Target will pursue business development in the minimally invasive medical area where future demand is expected to grow. The new company will operate in areas which range from diagnostic to treatment fields, such as minimally invasive diagnosis using endoscopes and treatment using laparoscopes and endoscopes, and will focus on globally cultivating bionic material markets including new ceramics and intraocular lenses. In addition, the Tender Offeror and the Target will selectively invest to enhance product development capabilities through research and development and M&A strategies and to strengthen sales and marketing structures in Japan and overseas. Through these measures, both companies aim to double the size of their life care business.
(ii) Optics area (optical glass and lenses, digital camera modules, micro-lenses, etc.): The Tender Offeror and the Target will vertically integrate the design, materials, lenses, processing and module groups in the optics area, which is expected to strengthen cost competitiveness and to lead to qualitative structural reform of technology development capacity. They aim to become the only optics manufacturer in the global market which will be able to create new optics module system products. The Tender Offeror and Target will mutually utilize their respective manufacturing sites and customer bases, in order to secure a competitive edge against structural change in the optics industry including newly emerging Asian players.
(iii) Information technology area (mask blanks and glass disk substrates): This is a core emerging driver where the Tender Offeror has secured a leading market position globally. The new company group after the integration aims to further strengthen competitiveness and growth in this area.
(iv) Eye care area (eyeglass lenses and contact lenses): Stable growth is expected in this business area. Positioning this business area as another core earnings driver of the new company group after the integration, the Tender Offeror and the Target will continue to further strengthen competitiveness and further grow this business area.
(v) Imaging systems area (digital cameras and binoculars, etc.) In order to enhance the business’s value, the new company will differentiate its offerings by specializing in high-value added products with unique technology and will focus on areas where it has a competitive edge. This area will be positioned as a foundation for development of new optical-related equipment and is expected to diversify into the life care and security business areas.
(vi) With respect to new areas and other areas, the Tender Offeror and the Target seek to invest aggressively in areas where they see future earnings growth opportunities. At the same time, they will focus on selected business areas to improve efficiency and to achieve optimal usage of managerial resources. The Target’s PENTAX brand will continue in consideration of its importance and economic value after the management integration between the Tender Offeror and the Target.
The full details of the press release, including the financial information can be read here.