Applied Materials to buy Tokyo Electron in $9.39-bn stock deal

Applied Materials Inc, the world's largest producer of chip-making equipment, yesterday said it would to acquire its smaller Japanese rival Tokyo Electron Ltd, in an all-stock deal valued at $9.39 billion in one of the biggest-ever Japanese acquisitions by a foreign company.

Tokyo Electron is the world's third-largest chip making equipment manufacturer. Analysts expect the deal will invite regulatory scrutiny  since the transaction would combine two of the three largest players in the industry.

The combination will create a global giant in the fields of both semiconductor and display technologies, capable of providing affordable personal devices such as PCs, smartphones and tablets to consumers around the world.

The deal represents a 6-per cent premium to Tokyo Electron's market value of about $8.8 billion.

The new entity created through 'a merger of equals' will have a market capitalisation of approximately $29 billion, dwarfing other competitors in the field.

Under the terms of the deal, Tokyo Electron shareholders will receive 3.25 shares in the yet to be named new company, for each of their shares, while stockholders of Applied Materials will get one share of the new company for each share they own.

Post closing, shareholders of Applied Materials will hold 68 per cent of the new company, while the remaining 32 per cent would be held by Tokyo Electron shareholders.

The new company will be incorporated in the Netherlands, but have its headquarters in California and Tokyo and will maintain stock listings on both the Nasdaq and the Tokyo Stock Exchange.

Applied Materials expects the merger to bring in savings of $250 million through synergies by the end of their first full fiscal year and $500 million in the third fiscal year.

The company will buy back $3 billion of its own shares within a year of the deal's closing, which is expected by the second half of 2014.

Tokyo Electron's CEO, Tetsuro Higashi, will become chairman of the new company, while Gary Dickerson, CEO of Applied Materials, will hold the chief executive title.

Each company will appoint 5 members to the board of the new company, and will mutually agree on an 11th director.

"Today, we are launching a new company and taking a bold step forward for our industry.  Built on a foundation of people, technology and commitment, we are creating a truly global company that we believe will expand the value we deliver to our customers and be able to achieve new levels of financial performance, said Higashi.

"We are creating a global innovator in precision materials engineering and patterning that provides our new company with significant opportunities to solve our customers' high-value problems better, faster and at lower cost," said, Dickerson.

Both companies justified the merger saying that the new company will enable major, future technology inflections and advance customers' roadmaps in both semiconductor and display.

Applied Materials and Tokyo Electron believe the new company will be well-positioned to provide valuable, differentiated device performance and yield solutions that enable the new device architectures and cost-effective scaling for customers.

Goldman, Sachs & Co acted as the exclusive financial advisor for Applied Materials while, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. acted as Tokyo Electron's exclusive financial advisor.