Ball in Rivals' Court for August Tech Takeover - TheStreet

August Technology

( AUGT) and

Nanometrics

(NANO) - Get Report

have

shown their playbook for convincing investors to accept their merger at a steep discount to where shareholders currently value the companies, but two other suitors,

Rudolph Technologies

(RTEC) - Get Report

and

KLA-Tencor

(KLAC) - Get Report

, may yet have some of their own plays to run.

Nanometrics' takeover deal for August, which currently values August stock at a 36% discount to its current price of $11.88 a share, has been viewed as strategically sound but financially lacking. This became even clearer when Rudolph Technologies and KLA-Tencor

stepped in with higher, unsolicited offers. Up until now, those offers have seemingly

gone nowhere, as August again said this week that it hasn't progressed with getting either Rudolph or KLA-Tencor to agree to confidentiality agreements.

But that sticking point could soon be resolved.

"I'm sitting back to see what happens," says one major institutional holder of August shares, who requested anonymity, adding that he won't support the August-Nanometrics deal at the current ratio. "I think that one or both

of Rudolph or KLA-Tencor will sign confidentiality agreements soon, and at that point I think it will turn into a bidding contest."

Getting the confidentiality agreements inked are important, because without them, a bidder can't look more closely at financial books and operational information unavailable outside a company. Such an agreement would be a key step in providing a basis for an increased bid, or even a more formal bid.

Currently, Rudolph's combined bid of $2.10 a share in cash, up to $40 million in total, and 0.4955 a share of Rudolph stock for each share of August, is worth $9.57 a share. (Prior to a 20% drop in Rudolph's stock price during the past month, that bid was briefly worth $11.51 a share.)

As for KLA-Tencor and its $11.50-a-share cash bid, filings show that the company was originally prepared to pay up to $12 a share for August. And KLA-Tencor has stated it would consider a stock bid -- a condition that August has said it would consider.

With its current bid representing only 10% of its total cash balance, as well as the company's ability to tap a strong stock, KLA-Tencor is viewed as a defensive player, but one with the muscle to make it happen.

Now that the merger rationale of August and Nanometrics is in the open, look for KLA-Tencor to make a stronger case for itself. This may not necessarily mean raising its bid, but simply shifting its bid to an all-stock offering. A KLA-Tencor executive two weeks ago indicated that the company doesn't feel obligated to bid against itself.

August continues to maintain that its brightest future is with Nanometrics, and as a second resort with Rudolph. August's assumptions about post-merger cost cuts indicate that widespread reductions are expected if KLA-Tencor succeeds in its bid -- a situation that may reward shareholders but may not be great for August employees.

Nanometrics, too, seems to be sensing that the final play is nearing and that it could potentially be left sitting on the bench when the buzzer sounds. Nanometrics CEO John Heaton sent a letter to certain customers last week, urging them to "join us in insuring the successful, unhindered completion of the August-Nanometrics merger. We believe in the power of the market to decide what's rational and right."

But it seems the market has already decided and doesn't like what it sees in an August-Nanometrics merger. Rudolph and KLA-Tencor still haven't been heard from since their initial bids, but it's doubtful they'll continue to sit on the bench.