Lam Research Corp. (NASDAQ: LRCX) agreed to acquire KLA- Tencor Corp. (NASDAQ: KLAC) in a $10.6 billion cash-and-stock deal, testing regulators six months after a smaller merger between chip- equipment suppliers was halted over antitrust concerns.
KLA-Tencor shareholders can elect to receive $32 in cash and 0.5 of a Lam Research common stock, in all-cash, all-stock, or mixed consideration, according to a statement Wednesday. The offer values KLA-Tencor at about $67.02 a share, or 24 percent more than the stock’s last closing price in New York.
Wednesday’s announcement takes total semiconductor deals announced in the past year to almost $95 billion as rising costs drive chipmakers and their suppliers to consolidate amid slowing demand for PCs, smartphones and servers. Intel Corp. and Taiwan Semiconductor Manufacturing Co. last week announced they’re cutting spending this year, citing weakness in the industry.
The global market for chip-manufacturing equipment, including used machines, will climb 5 percent this year to 37 percent billion, industry organization SEMI forecast last month.
A combined Lam-KLA entity would have $8.7 billion in annual sales, serve 42 percent of the wafer fabrication market, and realize $250 million in annualized cost savings in 18 to 24 months of closing the deal, the companies said. The deal is expected to close in mid-2016 with Lam Research saying it sees about $600 million in additional annual revenue by 2020 from the combination.
The acquisition would top Lam’s 2011 takeover of Novellus Systems Inc. for about $3.3 billion and be larger than Applied Materials Inc.’s proposed $9.4 billion bid for Tokyo Electron Ltd. announced two years ago.
Proposed remedies to limit antitrust issues, which weren’t outlined, "failed to resolve the U.S. Department of Justice’s competitive concerns" over the merger of Applied Materials and Tokyo Electron, the department said in April when the deal was canceled after 580 days.
While consolidation cuts the number of suppliers of expensive equipment needed to make cutting-edge chips, customers haven’t always opposed the moves. TSMC in Oct. 2013 favored Applied Material’s proposed purchase of Tokyo Electron, saying that "synergistic benefits" could be a good thing because R&D costs are rising. TSMC spokeswoman Elizabeth Sun didn’t immediately answer calls Wednesday seeking comment on the Lam- KLA merger.
Lam Research, based in Fremont, California, said it will fund the cash consideration and repayment of KLA-Tencor’s outstanding term loan with about $1.9 billion of cash on hand from the two companies and approximately $3.9 billion in debt financing.
At $10.6 billion, the offer is 28.9 times Milpitas, California-based KLA-Tencor’s 2015 full-year net income, compared with a median of 32.7 for 22 deals tracked by Bloomberg in the past year.