May 13--Industrial water-jet maker Flow International of Kent called off a long-delayed merger with smaller rival Omax after twice revising its offer.

"We believe that our path forward alone is far superior to one combined with Omax at the wrong price," Flow CEO Charley Brown said Tuesday in a conference call with investors.

Omax, also based in Kent, will receive a $35 million payment from Flow to cancel the merger obligation and also to settle patent litigation pending between the two companies for five years.

In 2007, publicly traded Flow offered $109 million in cash and stock for privately held Omax. After the economy sagged, Flow last year reduced the offer to $75 million. Then in March, it amended the terms again to allow the option of walking away after the termination payment.

John Olsen, co-founder of Omax and now vice president of operations, said the outcome is "very good news for Omax employees."

"Had the merger gone ahead, with the current financial situation, there would almost certainly have been layoffs in the joint company," Olsen said.

Flow, the world's largest water-jet maker, has about 670 employees worldwide, with about 330 of those in Kent.

Omax, the second largest water-jet manufacturer in the U.S. market, employs about 180 people worldwide, including about 160 in Kent.

With the merger proposal killed, Olsen said the big shot of cash leaves Omax in a strong position to develop new technology for its water jets during the slowdown.

"Had the merger happened when everything was going well in the economy, we would have been happy to join forces," said Olsen. "This way, we're also happy."

Brown said that in the past two months Flow pursued financing alternatives to close the merger and has "repeatedly gone back to the negotiating table attempting to lower the price of the deal."

Omax "was unwilling to move on the price, and financing alternatives at the existing price have proven to be way too dilutive to our current shareholders, so we have decided to walk away," Brown said.

Flow develops and manufactures industrial water jets. Small amounts of abrasive particles mixed into a thin jet stream of water are used to cut metal, plastic, stone and glass.

Japan's Mitsubishi uses Flow water jets to cut the carbon-fiber composite plastic for the wings of Boeing's 787 Dreamliner. Flow will also supply water jets to Airbus to cut parts for its composite-plastic jet, the upcoming A350.

After the late Monday announcement, Flow shares rose Tuesday, adding 22 cents, or 10.2 percent, to close at $2.38.

Both Flow and Omax are water-jet pioneers and hold key engineering patents. Omax was founded in 1993 by Olsen and fellow engineer John Cheung, both of whom were involved with early water-jet-technology companies that eventually became part of Flow.

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

Flow then countersued over its own patent.

Some $29 million of the Flow payment to Omax is going to settle that litigation. The additional $6 million is compensation for ending the merger talks.

Brown said Flow had been interested in Omax largely for its U.S. network of distributors to machine-tool shops.

Instead, he said, Flow has in recent months signed a significant number of new distributors by taking over the network of the third largest water-jet company in the U.S., Texas-based Calypso, which went out of business in January.

Dominic Gates: 206-464-2963 or dgates@seattletimes.com

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