The world’s leading provider of microchip manufacturing equipment, Applied Materials (AMAT) , has cut a deal to purchase Tokyo Electron (TOELY) . The deal is being made for $9.39 billion in stock, making it the biggest purchase of a Japanese company by a foreign buyer in six years.
“This is a merger of equals that is very rare between Japan and the U.S. We hope to make it a success,”said Tokyo Electron CEO Tetsuro “Terry” Higashi.
Stock prices jump on merger news
The markets clearly responded to news of the merger as shares in Tokyo Electron shot up over 16.5 percent and Applied Materials gained over 8.5 percent. The merger will create a new $29 billion company with Applied Materials CEO Gary Dickerson at the helm, who only took over for former Applied Materials CEO Mike Splinter earlier this month.
"They have the highest profit margins, they have the best balance sheets, they make money through thick and thin," said David Rubenstein, a senior analyst at Advanced Research Japan, extolling the virtues of both sides of the merger. "So they are not desperate, but they are hungry for earnings growth and this is one way they can do it."
Stifel Nicolaus & Co analyst Patrick Ho saw the deal as a positive for Applied Materials, stating: "Applied Materials is going to be the biggest beneficiary from this deal, given that they're going to be a large company and I think their customer exposure also improves following this deal."
Tough times ahead for industry?
Others saw dark clouds on the horizon for the industry that could hamper the new company’s ability to show profits.
“It’s a defensive strategy because R&D costs are going up and the number of customers is going down,” said Amir Anvarzadeh of Singapore’s BGC Partners Inc. “This tells you there’s a problem in the industry.”
With spending on semiconductor equipment projected to decline by more than 8 percent this year, consolidation appears to be part of preparing the two companies to weather the coming storm.
“It’s best for major U.S. companies and Japanese companies to join hands in terms of costs and technology platforms,” said Higashi to reporters today.
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