Applied Materials to merge with Tokyo Electron

Gary Dickerson (L), president and CEO of Applied Materials and Tetsuro Higashi, chairman, president and CEO of Tokyo Electron.

Gary Dickerson (L), president and CEO of Applied Materials and Tetsuro Higashi (R), chairman, president and CEO of Tokyo Electron.

Applied Materials Inc. and Tokyo Electron Limited today announced Applied Materials agreed to merge with Tokyo Electron in a deal valuing the Japanese semiconductor production equipment maker at $9.3 billion, creating a giant in the chip and display manufacturing-tools sector. An all-stock combination values the new combined company at approximately $29 billion. The companies expect the transaction to close in mid to second half of 2014.

“Today, we are launching a new company and taking a bold step forward for our industry,” said Tetsuro Higashi, chairman, president and CEO of Tokyo Electron.

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 percent of the new company and Tokyo Electron shareholders approximately 32 percent.

Gary Dickerson, president and CEO of Applied Materials, said he believes they are creating a global innovator in precision materials engineering and patterning.

“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,” said Dickerson.

The new company will have a shared leadership team. Tetsuro Higashi will serve as chairman, and Gary Dickerson will serve as chief executive officer.  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. Seven of the eleven directors will be independent. Bob Halliday of Applied Materials will serve as chief financial officer. The company will also have a new name, dual headquarters in Tokyo and Santa Clara, a dual listing on the Tokyo Stock Exchange and the NASDAQ, and will be incorporated in The Netherlands.

This merger could give the new company control of as much as a quarter of the entire market. Other top Applied Materials rivals include Veeco Instruments, KLA-Tencor, Lam Research Corp and ASM International.

In its official release, Applied Materials said the combined organization is intended to accelerate the existing strategic visions of Applied Materials and Tokyo Electron and increase the new company’s opportunity to enable major, future technology inflections and advance customers’ roadmaps in both semiconductor and display, citing the market growth in personal mobile electronics, such as smartphones and tablets, as a driver in the company’s strategic plans.

“We are building this new company in the spirit of a merger of equals,” said Dickerson. “For five decades, we have each made significant contributions to the semiconductor industry and we have deep respect for the capabilities that the other brings to this combination. Both companies have a strong heritage of customer service and an enduring commitment to push the boundaries of technology and engineering.  We share many common values and are confident we will execute together to achieve our strategic and financial goals.”

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.  In addition, the new company expects to realize meaningful savings as a result of the new corporate structure. The new company intends to commence a $3.0 billion stock repurchase program targeted to be executed within 12 months following the close of the transaction. On a non-GAAP basis, taking into account the buyback, the transaction is expected to be EPS accretive at the end of the first full fiscal year after transaction close.

Goldman, Sachs & Co. acted as Applied Materials’ exclusive financial advisor, and Weil, Gotshal & Manges LLP, Mori, Hamada & Matsumoto, and De Brauw Blackstone Westbroek acted as legal counsel to Applied Materials.  Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. acted as Tokyo Electron’s exclusive financial advisor, and Jones Day, and Nishimura & Asahi acted as legal counsel to Tokyo Electron.

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