Applied Materials at 5-year highs after $9B Tokyo Electron deal

Sep 26, 2013
Austin Business Journal

Applied Materials Inc. stock hit five-year highs on Tuesday after the chip-making equipment giant agreed to buy Tokyo Electron Ltd. in an all-stock deal valued at more than $9 billion


The Santa Clara, Calif. company's shares closed at $17.44 after soaring as high as $17.52 following the word that the world's No. 1 maker of equipment used to make semiconductors will buy its No. 3 rival. The last time the stock was at this level was in August 2008, just before the global financial crisis struck


The combined company, which will have a new name that has not yet been announced, will be incorporated in the Netherlands and have headquarters in Santa Clara and Tokyo


The deal could face antitrust scrutiny, given the dominant position of the companies in the chipmaking equipment industry. It isn't expected to close until the second half of next year


Rick Gesing, Applied Materials' vice president of worldwide operations and head of its Austin office, told us on Tuesday that the deal should do more for Austin than if the two companies continued to operate independently. Applied Materials employs about 2,500 here, while Tokyo Electron has more than 300 local workers on its payrolls


Applied Materials (Nasdaq: AMAT) jumped to the No. 1 spot in the chipmaking equipment industry in 2011 when it bought Varian for $4.9 billion, passing ASML of the Netherlands. The Dutch company is now No. 2 between Applied and Tokyo Electron


The chipmaking equipment industry has suffered in recent years as its customers have dealt with declining PC sales and the shift to mobile devices. Sales of chip making equipment dropped by 16 percent last year to $37.8 billion, according to tech research firm Gartner


In its most recent quarter Applied reported a 23 percent drop in earnings to $168 million on a 15 percent revenue decline to $1.98 billion


Applied Materials will own about 68 percent of the new company and its CEO, Gary Dickerson, will remain in that position


Dickerson was promoted last month to the top job at the company from his previous role as president. He succeeded Michael Splinter, who had led Applied since 2003. Dickerson was CEO of Varian when it was bought by Applied two years ago


Tokyo Electron shareholders will receive 3.25 shares of the new company for every existing share they hold. Applied Materials shareholders will get 1 share


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