Coherent Is a $6.4 Billion Target After a Laundry-Room Start

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For Coherent Inc., like many companies, Covid-19 was a gut punch in 2020. By mid-March, half its stock value had been wiped away. By April, orders had dropped more than 40%, and with employee safety precautions in place, production capacity fell to 80%.

The opposite was supposed to happen. The laser maker was poised for a huge breakout as a key supplier for a new generation of 5G phones with OLED screens that were about to hit the market. Coherent’s lasers provide the exact temperatures to process layers of polymers that give OLED screens more brilliance and sharper resolution than older LCD screens. But the pandemic slammed the brakes on all that.

Now, in what might be a sign of optimism about a post-Covid economic thaw, Coherent is in the middle of a suddenly heated three-way takeover battle. II-VI Inc. put forth a $6.4 billion unsolicited bid on Friday, facing off against a $5.9 billion offer from MKS Instruments Inc. and an agreed-upon deal for $5.7 billion with Lumentum Holdings Inc.

The path to billions had a familiar start. In a twist on tech stories that trace back to a Palo Alto, California, garage, Coherent’s beginnings were in a Palo Alto laundry room. There, 55 years ago, the company’s founders rigged a high-voltage outlet to a gutter pipe and created a laser. Months later they were selling carbon-dioxide lasers.

Near the Niners

Today’s Coherent is based in the center of Silicon Valley, in a large, no-frills two-story office building in Santa Clara, California. It’s next to Calabazas Creek and four blocks from Levi’s Stadium, home of the NFL’s San Francisco 49ers.

The company’s largest individual shareholder is former Chief Executive Officer John Ambroseo, who has seen the value of his 0.8% stake rise to $49 million from $28 million this year. Ambroseo, 59, started with Coherent as a sales engineer in 1988 and has announced he will retire from his advisory role with the company at the end of this year.

While a leader in a specialized technology niche, Coherent supplies a wide variety of industries, including display-screen manufacturers, bioscience, aerospace and defense.

It’s not a surprise that it’s become a target, as “there are lots of acquisitions in this group,” said Mark Miller, an analyst with Benchmark Co.

The suitors are “very diversified, and they all bring something different to the table,” Miller said. “We’re about to be on the upswing with OLED, and the economy is coming back. People are looking for growth and scale and new geographies.”

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