Applied Materials, Tokyo Electron to form new chip-making conglomerate

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California-based chip equipment maker Applied Materials has bought Tokyo Electron Limited in an all-stock deal worth an estimated $10 billion.

The move, announced on Wednesday, will create a new leading global semiconductor equipment group valued at approximately $29 billion (JPY 2.8 trillion). The purchase is seen as further consolidation in an industry that has seen decreasing demand for equipment used to prepare silicon for chip fabrication.

The company will have a new name, dual headquarters in Tokyo and Santa Clara, California, a dual listing on the Tokyo Stock Exchange and the NASDAQ, and will be incorporated in the Netherlands.

Under the terms of the agreement, Tokyo Electron shareholders will receive 3.25 shares of the new company for every Tokyo Electron share held. Applied Materials shareholders will receive 1 share of the new company for every Applied Materials share held. After the close, Applied Materials shareholders will own approximately 68% of the new company and Tokyo Electron shareholders approximately 32%.

The companies expect to achieve $250 million in annualized run-rate operating synergies by the end of the first full fiscal year and $500 million in run-rate operating synergies realized in the third full fiscal year. The new company intends to buy back $3 billion of stock over 12 months following the close of the deal.

Applied Materials said in a statement that the combination, which has been unanimously approved by the boards of directors of both companies, “brings together complementary leading technologies and products to create an expanded set of capabilities in precision materials engineering and patterning that are strategically important for customers.”

Gary Dickerson, Applied Materials president and CEO, said the fusion of the two companies would provide “significant opportunities to solve our customers’ high-value problems better, faster and at lower cost. 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."

In a joint statement, Dickerson and Tetsuro Higashi, Tokyo Electron chairman, president and CEO, added, “We are building this new company in the spirit of a merger of equals. … We share many common values and are confident we will execute together to achieve our strategic and financial goals."

The new company will have a shared leadership team, with Higashi serving as chairman and Dickerson as 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. Bob Halliday of Applied Materials will serve as chief financial officer.