LONDON — ATE gear rivals Credence Systems Corporation and LTX Corporation are planning to merge in an all-stock merger of equals.

Under the terms of the agreement, Credence shareholders would own 50.02 percent of the combined company and LTX shareholders the remainder.

The companies say combined strengths of the two firms "will create a leading provider of focused, cost-optimized solutions designed to enable customers to implement best-in-class test strategies to maximize their profitability."

Last week, continuing to divest its unwanted lines, Credence entered into a definitive agreement to sell its automotive ATE unit in Amerang, Germany to Japan's Advantest Corp. for $5 million.

Following a recent layoff and a product divestment effort, Credence (Milpitas, Calif.) said it planned plans to narrow its focus and go back to its roots.

Earlier this year, Credence entered into a definitive agreement to sell its diagnostics and characterization business to DCG Systems Inc. for $10 million.

In April, citing worrying signs in the market, Credence lowered its forecast. It said "delays in certain of Credence's previously announced restructuring initiatives, which included divestitures, site closures and headcount reductions, will impact the company's ability to achieve the previously announced breakeven revenue targets by the end of fiscal 2008."

The new company will address the broad, divergent test requirements of the wireless, computing, automotive and entertainment market segments. It will offer a complementary portfolio of technologies, the largest installed base in the Asia-Pacific region, and a global network of strategically deployed applications and support resources.

Lavi Lev, President and CEO of Credence, would become Executive Chairman of the combined company for a transitional period following the merger. David Tacelli, CEO and President of LTX, would take the roles of CEO and President; and Mark Gallenberger, CFO and Vice President of LTX, will become CFO.

"This merger, from a technical and business point of view, represents the logical next step for both companies' long-term growth," said Lev. "We believe the combined strength of our technical expertise in RF, digital, mixed-signal and analog, coupled with a complementary product portfolio, will benefit our customers as they test and deploy high volume, highly integrated devices into their respective market segments. From a business perspective, the merger broadens our customer base and provides a strong opportunity for growth."

According to Gallenberger, the companies expect the combination to drive efficiencies associated with operating a larger business, and anticipate annual cost savings of approximately $25 million at the end of the integration period.

For the quarter ended April 30, LTX had sales of $31 million, up 5 percent from prior quarter sales of $29.6 million. Net loss for the quarter was $3.2 million.

For Credence, during the first quarter of the year, sales came in at $63.2 million, down 35 percent from the fourth quarter of fiscal 2007, and down 47 percent from the first quarter of fiscal 2007. Net loss for the quarter was $56.1 million.

The merger is subject to approval by both companies' stockholders, as well as the usual conditions and regulatory approvals. The boards of directors of both companies have unanimously approved the agreement and recommend their stockholders vote in favor of it.

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