Applied Materials, the world’s largest chipmaking equipment seller, agreed on Tuesday to buy Japan’s Tokyo Electron in a $9.39 billion all-stock deal.
The move represents a large step in the consolidation of the semiconductor industry as revenues shrink across the supply chain.
The combined company will have a new name, dual headquarters in Tokyo and Santa Clara in the US, a dual listing on the Tokyo Stock Exchange and the Nasdaq, and will be incorporated in The Netherlands.
If completed the transaction will mark the second-largest ever purchase of a Japanese company by a foreign firm, behind Citigroup's $13.9 billion staggered purchase of Nikko Cordial in 2007, according to data provider Dealogic.
Gary Dickerson, president and chief executive of Applied Materials, will be the new company’s CEO. The board will be made up of eleven directors, with five directors appointed by each company and one additional director to be mutually agreed upon. Seven of the eleven directors will be independent. Bob Halliday of Applied Materials will serve as chief financial officer.
“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.
Tokyo Electron shareholders will receive 3.25 shares of the new company for every Tokyo Electron share held, while Applied Materials shareholders will receive 1 share of the new company for every Applied Materials share held.
Applied Materials shareholders will own approximately 68% of the new company and Tokyo Electron shareholders approximately 32%.
In spite of a profit ratio of 3:1 in favour of Applied Materials, the share split does not reflect that, notes British research house Pelham Smithers Associates.
Strategically, the move is also probably better for Tokyo Electron. Applied Materials is strong in deposition, which is likely to be key in semiconductor production equipment as three-dimensional integrated circuits become more prevalent, and the US company is also stronger in solar, said Pelham Smithers.
The companies expect to achieve $250 million in annualised run-rate operating synergies by the end of the first full fiscal year, less than 1% of the new company’s market capitalisation.
UBS analysts said the savings will likely come from merging their etch businesses, where each company had a 20%-30% market share.
The new company will buy back $3 billion of stock within 12 months following the close of the transaction.
Goldman acted as Applied Materials' exclusive financial advisor. Mitsubishi UFJ Morgan Stanley Securities acted as Tokyo Electron's exclusive financial advisor.
The deal is subject to approval by Applied Materials’ and Tokyo Electron's shareholders and review by regulators. The companies expect the transaction to close in mid to second half of 2014.