December 6, 2007 -- Kent-based companies Flow seeks to buy Omax, consolidate abrasive-cutting forces. 

Two Kent companies that compete head to head and have sued each other over patent claims want to settle their differences and merge.

Flow International, which develops and manufactures industrial waterjets used to cut metal, plastic, stone and glass, announced Wednesday it intends to acquire smaller rival Omax.

Flow said it would pay about $109 million in cash and stock, with potential additional payouts to Omax shareholders in two years of up to $26 million.

"Both companies have been successful in making abrasive-jet technology more widely accepted. Our success breeds competition," said Jim O'Connor, chief financial officer of Omax. "We are seeing competitors come into the marketplace. Some of those competitors, if they chose to deploy them, have more resources than we do. We are looking to combine strengths."

Both companies are waterjet pioneers and hold key engineering patents. Omax was founded in 1993 by engineers John Olsen and John Cheung, key people in early waterjet-technology companies that became part of Flow.

In 2004 Omax sued Flow, alleging infringement of its patents on software that controls the waterjet and seeking damages of more than $100 million.

Flow countersued over its own patent. In regulatory filings Flow conceded that "an unfavorable outcome is reasonably possible" and that it "has spent, and expects to continue to spend, considerable amounts on this case."

If completed, the merger would settle all litigation between the two companies.

"One of the fundamental tenets of this marriage is bringing together two outstanding R&D and engineering product- development teams," said Flow CEO Charley Brown.

Omax has signed an agreement giving Flow the exclusive option to negotiate an acquisition.

Before a final agreement, the companies must complete their due diligence. Flow said the deal is expected to close within six months, pending antitrust clearance from the Department of Justice.

In the 1990s, the Justice Department barred Flow from acquiring the waterjet business of Ingersoll Rand on antitrust grounds. But Brown said that back then Flow and Ingersoll were rivals in a small niche.

"It's a whole different market situation now," he said.

Although Flow is the leading maker of complete waterjets and Omax is its largest rival, Brown said there are more than 80 waterjet companies in all, and others that make the specialized water pumps.

In addition, Brown said, the waterjet has become an accepted machine tool that competes for cutting jobs in the larger market of equipment using blades, drill bits or lasers.

Computer-controlled waterjets use a thin stream of water and abrasive sand to cut hard materials such as metal or stone into virtually any shape.

The combined company will continue both sets of product lines. Omax focuses on smaller general-purpose machine tools. Flow makes those, too, but has also developed large, custom-built waterjets with five-axis cutting heads.

Mitsubishi in Japan uses Flow waterjets to cut the composite plastic for the wings of Boeing's 787 Dreamliner. Last month, Mitsubishi placed a follow-on order for a second round of Flow waterjet tooling as it prepares to increase production.

Flow has about 800 employees worldwide, 350 of them in Kent.

Omax has grown rapidly in the last three years and now employs 180 people worldwide, about 150 in Kent. All Omax employees hold share options.

Omax's O'Connor said the market's growth likely means no layoffs will result from the merger. "We're virtually adding a company the size of Omax every year {ellipsis}. It's a huge market."

Despite their litigious history, Flow's Brown said he didn't anticipate great difficulty integrating the two companies.

"A number of the engineers and technical teams were together at Flow many years ago," said Brown. "Yes, there are some recent skirmishes going on in the courtroom, but there are also some long- term, very solid relationships that will help us bring the two cultures together and bury the hatchet."

Source: The Seattle Times