Tokyo Electron acquired by Applied Materials

November 2013 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

In one of the largest ever purchases of a Japanese company by an overseas buyer, Tokyo Electron Limited has been sold to US firm Applied Materials Inc in an all stock deal worth $10bn.

The deal for Tokyo Electron has been unanimously agreed by the boards of both companies and is expected to be completed in the second half of 2014. The transaction is still subject to customary closing conditions, including the approval of the shareholders of both companies and regulators. However, the two companies do not expect the acquisition to be blocked by regulators as they manufacture very different products.

Once the transaction has been approved, the combination of the world’s largest and third largest makers of chip-manufacturing equipment will create a new company valued at approximately $29bn. The new firm will be headquartered in both Santa Clara, California and Tokyo, but will be incorporated in the Netherlands.

According to the terms of the deal, 68 percent of shares in the new company will be transferred to Applied Materials’ shareholders and 32 percent will go to the stakeholders of Tokyo Electron. Tokyo Electron’s shareholders will receive 3.25 shares of the new company for each Tokyo Electron share held. Owners of shares in Applied Materials will receive one share of the new company for each Applied Material share held.

In a statement announcing the deal, Tetsuro Higashi, Tokyo Electron’s chairman, president and chief executive officer, said “Today, we are launching a new company and taking a bold step forward for our industry. Built on a foundation of people, technology and commitment, we are creating a truly global company that we believe will expand the value we deliver to our customers and be able to achieve new levels of financial performance.” Tokyo Electron has endured a difficult time of late. The company’s net income for the financial year to 31 March dropped 80 percent to $61m. Applied Materials’ net income has also fallen steadily over the past two years; the company also posted losses in two quarters during that period.

Upon completion of the deal, the newly combined company expects to realise $250m in operating synergies by the end of the first full fiscal year, rising to $500m in operational synergies in the third full year. The new company also proposes to launch a $3bn share buyback scheme within 12 months of the merger; the first scheme of this type in Tokyo Electron’s 50 year history.

Gary Dickerson, president and chief executive officer of Applied Materials, said “We are creating a global innovator in precision materials engineering and patterning that provides our new company with 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.” Mr Dickerson will remain chief executive of the newly combined company. Mr Higashi will serve as chairman. The company will maintain a dual-listing on both the Nasdaq and the Tokyo Stock Exchange.

The board of the new firm will comprise five directors appointed by each company, and one additional director to be mutually agreed upon. Seven of the directors will be independent. Bob Halliday of Applied Materials will serve as the new company’s chief financial officer. The combined company will adopt a new, as yet unannounced, name.

The new company will enter a semiconductor market in which manufacturers are increasingly pinning their hopes on the continued demand for smartphones and tablets. Once the deal has been completed, the newly combined company will control approximately one quarter of the entire market.

Richard Summerfield