On Monday, Applied Materials called off its $10 billion acquisition of Tokyo Electron, citing U.S. anti-trust concerns.
The takeover would have created a $30 billion semiconductor equipment giant.
Relying On Old-Fashioned Stock Picking, Lee Ainslie Reports His “Strongest Quarter” Ever
Lee Ainslie's Maverick Fund USA enjoyed its "strongest quarter in the fund's history" during the three months to the end of June. According to a copy of the firm's second-quarter letter to investors, which ValueWalk has been able to review, Maverick Fund USA gained 18% in the second quarter. Following this performance, the fund was Read More
Applied Materials: A rare foreign bid for a Japanese firm
As reported by ValueWalk, in September 2013, U.S. firm Applied Materials, Inc. announced it would acquire Japanese semiconductor equipment maker Tokyo Electron Limited, valuing the latter at about $9.3 billion. The two giants indicated that the acquisition would help them create new technologies for TVs, smartphones tablets and solar panels. As the two companies are arch-rivals, anti-trust issues were anticipated even at the time of the merger announcement.
Though technically the deal was a merger of equals, it was seen as a rare takeover of a Japanese firm by an American one. Tokyo Electron chief executive Tetsuro Higashi said at the time: “Japanese firms look like global companies, but they just aren’t…We need to combine the best of both Japanese and U.S. companies”.
However, on Monday, both the companies indicated that they were giving up, as the regulatory review dragged on for more than a year. Higashi said at a news conference in Tokyo: “We’ve been working on the project for a year and a half, and we’ve witnessed what makes a U.S. company strong on the global stage”. He added: “We’ll incorporate that and grow as a company.”
According to Applied Materials, both companies submitted a plan to the Justice Department to address competition issues, but the department advised the companies that it didn’t believe the plan went far enough.
Second big deal to fail because of anti-trust concerns
Today’s announcement is the second big deal to fail because of Department of Justice pressure in the past week, aftercable group Comcast’s scrapped its planned takeover of Time Warner Cable on Friday. The merger talks between Comcast and Time Warner collapsed after meetings between the cable companies and government officials.
The U.S. Federal Communication Commission joined lawyers at the Justice Department in opposing the planned merger, effectively killing the $45 billion deal.
The failure of the merger between Applied Materials and Tokyo Electron is likely to mean lower profit margins at both companies, but will benefit competitors such as Lam Research and customers such as Intel. The number of players in semiconductor equipment has been falling as research and development costs increase and the pool of customers shrinks. Presently only a small number of chipmakers, such as Intel, TSMC and Samsung, operate at the cutting edge of semiconductor technology, giving them significant power over equipment suppliers.
Following calling off their merger, both companies announced share buybacks. To appease shareholders, Applied Materials said it would buy up to $3 billion worth of shares over three years and Tokyo Electron said it plans to buy back up to 120 billion yen ($1 billion) worth of shares.