Entry into exclusive negotiations between Keysight and ESI Group’s main shareholders to acquire a controlling block followed by the launching of a mandatory cash tender offer

Full-length press release

Keysight and ESI Group today announced that Keysight has made a binding offer to acquire a 50.6%[1] controlling interest in ESI Group, which would be followed by the mandatory filing by Keysight of a tender offer for the remaining shares issued by ESI Group at a price per share of 155 euros paid in cash, and that they have entered into exclusive negotiations.

The acquisition values ESI Group’s entire issued and to-be-issued share capital under stock options and free share plans at approximately 913 million euros on a fully diluted basis.

ESI Group’s sophisticated software solutions simulate a product’s behavior during testing and real-life use. The company’s portfolio is highly differentiated, with predictive simulation technology for the most challenging system designs. ESI Group’s real-time digital twin solutions combine model-driven simulation with data-driven test to create virtual simulations, and its immersive industrial solutions enable workflow automation and virtual manufacturing.

In today’s era of digital transformation, product development across many industries is shifting left in the design cycle and becoming virtualized. Computer-aided engineering supports this shift left with virtual prototyping of products, manufacturing processes, and workflows.

By bringing ESI Group into its electronic design and test portfolio, Keysight will further expand its software prototyping capabilities into computer-aided engineering, enabling customers to accelerate time to market and lower operational costs, while reducing their environmental footprint.

About the proposed transaction

In the context of a competitive sale process, Keysight has entered into exclusive negotiations with certain shareholders[2] of ESI Group representing in aggregate 50.6%1 of ESI Group's share capital and 55.8%1 of its theoretical voting rights (the "Sellers"), with a view for Keysight to acquire the entire shareholding of the Sellers (the "Controlling Block").

These exclusive negotiations result in particular from a put option (the "Option") granted under customary conditions by Keysight to the Sellers. Under the terms of the Option, the Sellers benefit from an option that they may decide to exercise following the information and consultation procedure of ESI Group's social and economic committee (the "CSE"), which will be initiated as soon as possible.

The signature of definitive agreements can only take place once such CSE information and consultation procedure has been completed. Completion of the acquisition of the Controlling Block is also subject to obtaining certain regulatory approvals.

Subject to the completion of the acquisition of the Controlling Block by Keysight, Keysight will file with the Autorité des Marchés Financiers (the "AMF") a mandatory tender offer for all remaining outstanding ESI Group shares, on the same financial terms as the acquisition of the Controlling Block (i.e., 155 euros per share in cash) (the "Offer"). The Offer price values 100% of ESI Group's entire share capital issued and to be issued under stock options and free share plans at approximately 913 million euros on a fully diluted basis.

The Offer price of 155 euros per share represents a premium of approximately:

• 72% to the closing price of 90.0 euros per share on the Leak Announcement Date; and
• 95% to the volume weighted average price of 79.4 euros per share for the three months up to the Leak Announcement Date.

Completion of the tender offer is subject to the AMF's declaration of conformity (déclaration de conformité). In the event that the 90% threshold in share capital and voting rights are crossed at the end of the Offer, Keysight will request the implementation of a squeeze-out procedure for ESI Group.

Keysight will finance the transaction from a combination of cash and cash equivalents on its balance sheet.

On 28 June 2023, the board of directors of ESI Group unanimously welcomed the proposed transaction, without prejudice to the reasoned opinion to be issued following the submission of the report of the independent expert, and subject to the completion of the acquisition of the Controlling Block.

To this end, following the recommendation of an ad hoc committee, the board of directors of ESI Group has appointed Finexsi, represented by Mr. Peronnet, as an independent expert to draw up a report including a fairness opinion on the financial terms of the Offer, including in the event of a squeeze-out procedure, in accordance with the provisions of the AMF’s general regulations.

For the purposes of the Offer, the board of directors of ESI Group established an ad hoc committee, comprising Mr. Alex Davern (chairman and independent director), Mrs. Cristel de Rouvray (member of the board of directors and chief executive officer of ESI Group), Mr. Yves de Balmann (independent director) and Mr. Patrice Soudan (independent director). The purpose of the ad hoc committee is to monitor and facilitate the work of the independent expert, and to prepare a draft reasoned opinion on the merits of the Offer and its consequences for ESI Group, its shareholders and its employees.

Completion of the acquisition of the Controlling Block is expected to take place during the fourth quarter of 2023, and the filing of the subsequent Offer shortly thereafter.

The market will be kept informed of the progress of discussions between the parties, and a further announcement will be made in due course, as appropriate.

ESI Group’s financial advisors for the transaction are Evercore Group L.L.C. and Rothschild & Cie, with McDermott Will & Emery acting as legal advisor. J.P. Morgan Securities LLC is acting as exclusive financial advisor to Keysight with Paul Hastings LLP acting as legal advisor. King & Spalding International LLP is acting as legal advisor to Amy-Sheldon Loriot de Rouvray, Cristel Loriot de Rouvray, John Alexandre Loriot de Rouvray, and Amy Louise Loriot de Rouvray for this transaction.

“The operation we are announcing today is the culmination of a well-considered process and several years of transformation. It accurately recognizes the value of the work carried out by the leadership team and reflects the significant role ESI holds in the industrial software ecosystem. I, along with the entire Board, unanimously welcome this operation, and believe that it is in the best interest of the Company, its employees, its clients, its shareholders and all other key stakeholders.”

Alex Davern

Chairman and independent director of ESI Group

“I am delighted for ESI to announce this significant milestone today with Keysight Technologies. Over the past four years, our entire team has been dedicated to transforming ESI Group into a leading actor in the industrial software and simulation sectors. This combination with Keysight Technologies is a testament to the success of the work carried out over the years, and will enable ESI to enter a new phase of its development. The core values, vision and ambition that have driven Keysight Technologies over its long and reputable history and under its current leadership are perfectly aligned with those of ESI Group: pioneers enabling innovation for industry. I trust this operation is the promise of an exciting and sustainable future.”

Cristel de Rouvray

Member of the board of directors and chief executive officer of ESI Group

“Keysight’s acquisition of ESI Group accelerates our strategy of providing software-centric solutions with virtual prototyping and advanced simulation capabilities. Keysight and ESI Group share rich cultures of innovation and strong commitments to solving customers’ most complex challenges, which will enable value creation for all stakeholders. The Keysight team looks forward to working with the world-class talent at ESI Group to unlock opportunities and drive our combined success.”

Satish Dhanasekaran

President and chief executive officer of Keysight

_{[1] On the basis of a total of 6,085,912 shares and 8,054,528 theoretical voting rights as of 31 May 2023, noting that these percentages will be adjusted for potential loses of double voting rights.}

_{[2] The Sellers are Amy-Sheldon Loriot de Rouvray, Cristel Loriot de Rouvray, John Alexandre Loriot de Rouvray, Amy Louise Loriot de Rouvray, Alex Peng Dubois-Sun, Long Path Partners, and Briarwood Capital Partners}