Applied Materials Inc., the largest chipmaking equipment supplier, agreed to acquire Tokyo Electron Ltd. for $9.39 billion in stock in the largest deal for a Japanese company from outside the country in six years.

Gary Dickerson, who just became chief executive officer of Applied Materials on Sept. 1, will be CEO of the combined company, according to a statement from the Santa Clara, California-based firm and Tokyo Electron today. Applied Materials shareholders will own 68 percent of the new entity.

Dickerson, who replaced Mike Splinter as CEO, is moving to consolidate the industry across continents as growth in the chipmaking equipment business slows. Applied Materials in August forecast revenue that missed analysts’ estimates for the second straight quarter amid a record slump in the personal-computer market and muted semiconductor demand.

“It’s a defensive strategy because R&D costs are going up and the number of customers is going down,” Amir Anvarzadeh, a manager of Japanese equity sales at BGC Partners Inc. in Singapore. “This tells you there’s a problem in the industry.”

Equipment manufacturers are consolidating as production shifts toward semiconductors for mobile phones and tablet computers that require more advanced manufacturing equipment. Veldhoven, Netherlands-based ASML, Europe’s biggest chip equipment supplier, completed its 1.95 billion-euro ($2.6 billion) purchase of San Diego-based Cymer in May to expand in extreme ultraviolet lithography technology.


Makers Consolidate

Lam Research Corp. in 2011 agreed to buy Novellus Systems Inc. for about $3.3 billion in stock, combining in a challenge to Applied Materials.

The Applied Materials offer values Tokyo Electron at 16.5 times earnings before interest, taxes, depreciation and amortization, compared with the median of about 11 times for more than 60 similar deals, according to data compiled by Bloomberg.

Applied Materials rose as high as $17.24 in early trading, after closing at $15.99 yesterday.

Tokyo Electron shareholders will get 3.25 shares for each share held in the Tokyo-based company, and CEO Tetsuro Higashi becomes chairman of the new entity. Tokyo Electron, the No. 2 maker of chip production machines, reported a 3 billion yen ($30 million) loss for the three months ended June 30.

Technology Platforms

“It’s best for major U.S. companies and Japanese companies to join hands in terms of costs and technology platforms,” Higashi told reporters in Tokyo today.

The deal, which the companies described as a “merger of equals,” values Tokyo Electron at about 6 percent more than today’s closing price. Applied Materials shareholders will get one share in the new company for each they hold.

The purchase is the largest of a Japanese company from outside the country since Citigroup Inc.’s $8 billion deal for a majority stake in Nikko Cordial Corp. in 2007, according to data compiled by Bloomberg.

The combined company forecast cost savings of $250 million in the first year after completion of the deal. The company also plans to buy back $3 billion in stock in the first 12 months after the deal closes.

Tokyo Electron intends to complete the deal as early as the middle of next year, Higashi said today.


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