Applied Materials, Inc. (NASDAQ:AMAT) announced Tuesday it will acquire Japanese semiconductor equipment maker Tokyo Electron Limited (TYO:8035). The deal values Tokyo Electron Limited (TYO:8035) at about $9.3 billion. Both companies tried to showcase it as the merger of equals, reports Jennifer Thompson of the Financial Times. The deal will create a semiconductor equipment-making giant with a market value of about $29 billion. The two companies said in a statement that this will help them create new technologies for TVs, smartphones tablets and solar panels.
The newly formed company will be incorporated in the Netherlands. Applied Materials, Inc. (NASDAQ:AMAT) shareholders will own 68 percent of the enlarged entity, while Tokyo Electron Limited (TYO:8035) shareholders will get the remaining 32 percent stake. According to research firm Gartner, the combined company will have a 25 percent market share in the global semiconductor manufacturing business. Though global semiconductor manufacturing industry shrank last year, tablet and smartphone microchips are booming.
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The two companies are arch-rivals, so there could be anti-trust issues. However, Tokyo Electron Limited (TYO:8035) downplayed the possibility of an anti-trust issue, saying that their product lineups hardly overlap. Applied Materials, Inc. (NASDAQ:AMAT) CEO Gary Dickerson will remain the chief executive of the combined entity, while Tokyo Electron Ltd. chief Tetsuo Higashi will become the chairman of the new company.
Applied Materials, Inc. (NASDAQ:AMAT) and Tokyo Electron Ltd. will each have five representatives on the 11-member board. The companies will mutually decide the 11th candidate. Under the terms of the deal, Tokyo Electron Limited (TYO:8035) shareholders will get 3.25 shares of the new company for each share of the Japanese firm. In contrast, Applied Materials, Inc. (NASDAQ:AMAT) shareholders will receive one share of the combined entity for each share of the U.S. company.
Applied Materials, Inc. (NASDAQ:AMAT) expects to close the deal in the second half of 2014, depending on regulatory approvals. The merger is expected to generate $250 million in cost savings. Applied Materials, Inc. (NASDAQ:AMAT) said the new entity would launch a $3 billion share buyback program within 12 months of closing the deal.
Applied Materials, Inc. (NASDAQ:AMAT) shares surged 6.70 percent to $17.06 at 10:26 AM EDT.