Five law firms have played leading roles in Applied Materials Inc’s proposed purchase of rival Tokyo Electron, combining the No.1 and No.3 makers of chip-making gear.
Weil, Gotshal & Manges, Mori Hamada & Matsumoto, and De Brauw Blackstone Westbroek represented Applied Materials, while Jones Day and Nishimura & Asahi advised Tokyo Electron.
The all-stock deal, which analysts expect to hold up under scrutiny from antitrust regulators, will create a company valued at about $29 billion that would be 68 percent owned by Applied Materials shareholders, the companies said.
According to Thomson Reuters data, the deal is the second-largest foreign purchase of a Japanese company, and is worth $7.06 billion including net debt and excluding cash. That follows Citigroup Inc’s purchase of Nikko Cordial Corp for $7.9 billion in 2007.
Applied Materials, Tokyo Electron and Dutch chip equipment maker ASML Holding NV are the three largest players in an industry that has consolidated as the rising cost of developing cutting-edge chips and slowing semiconductor demand forced alliances and acquisitions.
Most U.S. chipmakers have sold off or mothballed capacity and outsourced manufacturing to Asian foundries such as Taiwan Semiconductor Manufacturing Co, further eroding Applied’s customer base.
The American company’s net income has fallen steadily over the past two years and it posted losses in two quarters during that period. Tokyo Electron reported a 23 percent drop in quarterly sales in July.
“When you look at the buyers of semiconductor equipment; when you look at the people who are really making very advanced chips these days, it’s a very small number,” Mike Splinter, Applied Materials’ executive chairman, told Reuters. “Technology changes are getting more difficult and complex.”
“Applied Materials is going to be the biggest beneficiary from this deal, given that they’re going to be a large company and I think their customer exposure also improves following this deal,” Stifel Nicolaus & Co analyst Patrick Ho told Reuters.
Applied Materials CEO Gary Dickerson will be chief executive of the new company and Tokyo Electron chief executive Tetsuro Higashi will become chairman. The companies will maintain dual listings on Nasdaq and the Tokyo Stock Exchange.
“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 in a statement. “We believe the combination will accelerate our momentum for profitable growth, increase the value we deliver to shareholders and create great opportunities for our employees.”
The companies said they expected to achieve $250 million of savings by the end of the first fiscal year of operation. The new company will also buy back $3 billion of its shares within 12 months of the combination, they said.
The companies expect the deal to close in the middle to the second half of next year.
Kanishk Verghese is North Asia journalist at ALB. Follow us on Twitter: @ALB_Magazine.
