Applied Materials (AMAT) to Buy Tokyo Electron for $10B

Shares of Applied Materials Inc. (AMAT) were trading up +0.41 or +2.36 percent to $17.86 midday after the company announced on Tuesday that it would purchase Japanese competitor Tokyo Electron Ltd in a deal worth in excess of $10 billion. Applied Materials shares were up +9.1 percent at the close on Tuesday after news of the acquisition was announced. The deal will combine the world's largest manufacturer of chip making gear, Applied, with the third largest, Tokyo Electron, with the new company to be 68 percent owned by Applied Materials shareholders and headed by Applied's new CEO Gary Dickerson.

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Santa Clara, California based Applied Materials Inc. is the world's largest manufacturer of equipment used in the making of semiconductors, flat panel displays, solar photovoltaic and other related industries. The company is separated into four main groups: Silicon Systems Group, Applied Global Services, Display, and Energy and Environmental Solutions. The combination of the two chip equipment makers comes at a time when the industry is consolidating amid lower demand and rising costs. Due to the slowdown in the industry, most U.S. chipmakers have outsourced their manufacturing to Asia. Applied reported net income has fallen over the last two years, while Tokyo Electron reported a quarterly decline of 23 percent in sales in July and a $30 million loss for the quarter ended on June 30th. The deal will give Tokyo Electron shareholders 3.5 shares of the new company for every share owned and make the company's CEO, Tetsuro Higashi the chairman of the new entity. Gary Dickerson, who replaced Applied Materials CEO Mike Splinter this month will be the CEO of the new company and is already making arrangements to move his family to Japan. The deal will be the largest ever for Applied, after buying up Varian Associates in 2011 for $4.9 billion. It is also the largest deal of its kind for a Japanese company, leaving a semiconductor powerhouse worth over $29 billion. Speaking to Reuters, Applied's executive chairman Mike Splinter noted, "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," he continued, "Technology changes are getting more difficult and complex." As far as product overlap between the two companies, he said, "We've looked at this in a lot of detail and we think the overlaps are very, very small." The deal has been received favorable by shareholders of both companies. Fitch rating agency in a release after the news said that the deal "strengthens the credit profile of the semicap equipment industry and combined company." The agency went on to say that, "The deal enables the joined companies to reduce costs for higher profitability through the semiconductor cycle, while reducing irrational pricing behavior." Combining both companies will be a landmark for the industry and could drive the combined company stock - which will be dual listed in Tokyo and the Nasdaq - to higher levels. Other News About AMAT Cramer: Applied Materials, Tokyo Electron deal won't happen Pundit says deal won't go through. Applied Materials Merger Could Spell More Layoffs Cost savings could be as a result of future layoffs. Other Stocks in the News Priceline Joins the Elite $1,000-Plus Club Stock goes over the $1,000 per share hurdle. Chipotle Sells Itself With a Sad Cartoon About Agribusiness Company produces revealing commercial about the food industry. Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Sep 25, 2013
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

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