Saxonburg-based II-VI Inc. is poised to acquire Coherent Inc., a California-based industrial laser manufacturer and supplier, in a cash-and-stock deal valued at about $7 billion.

II-VI announced Thursday it had agreed to a merger with Coherent, in which Coherent will become a wholly owned II-VI subsidiary. As a result of the merger, Coherent shareholders will receive $220 and 0.91 II-VI shares for each Coherent share held.

Coherent had about 24.5 million shares outstanding as of Jan. 22, according to regulatory filings, bringing the cash total of the deal to roughly $5.4 billion, with more than 22 million II-VI shares to be issued.

II-VI touted that the two companies combined will produce about $4.1 billion in annual revenue. A press release stated the transaction will likely accrete to II-VI's earnings per share in the second year after closing.

Additionally, II-VI stated the combination of the two companies would create $250 million in cost-savings within three years, because of increased efficiencies in procurement, internal supply of components, research and development efficiency because of scale and the consolidation of corporate costs.

“Together, we will have significant opportunities to accelerate our growth through complementary technology platforms, strengthen our competitiveness by using our combined scale across the value chain, benefit from deeper market intelligence and expertise and further diversify our businesses by end market and geography,” II-VI CEO Vincent D. Mattera Jr. said. “Moreover, the combination of II-VI and Coherent will increase our collective exposure to irreversible megatrends for decades to come.”

The boards of directors of both companies have unanimously approved the merger, which is subject to regulatory approval. II-VI stated it believes the deal will be approved by the end of 2021.

A recent investor presentation from II-VI states Coherent shareholders will own about 18% of the combined company's stock at closing.

Given II-VI's stock close Friday at $70.55 per share, those shares will have an approximate value of more than $1.5 billion.

II-VI will finance the transaction with cash on hand, about $5.4 billion in debt financing from J.P. Morgan Securities LLC and a commitment of at least $1.8 billion from BCPE Watson SPV LP, an affiliate of Bain Capital LP. In a March 9 conference call with investors, Mary Jane Raymond, II-VI chief financial officer, said the J.P. Morgan financing will likely have an interest rate of about 3.6%.

II-VI has agreed to issue 75,000 shares of Series B-1 Convertible Preferred Stock to BCPE Watson for a total of $750 million; 75,000 shares of Series B-2 Convertible Preferred Stock for the same purchase price; and, if both parties agree upon closing, up to 65,000 shares of Series B-3 Convertible Preferred Stock for $10,000 each.

The shares are convertible at a price of $85 each any time after issuance, or may be converted into common stock three years after issuance if the common stock price is more than $127.50 for 20 of any 30 consecutive trading days.

Steve Pagliuca, Bain Capital co-chairman, is expected to join the II-VI board, and two Coherent directors also are expected to join the board upon closing.

According to II-VI, the Bain investment will enable the company to significantly reduce its leverage. Raymond said on the March 9 conference call that the Bain investment will decrease the company's leverage ratio, despite an increase in the cash portion of II-VI's accepted offer from its prior proposals.