Applied Materials Inc., the world's largest chipmaking equipment supplier, and Tokyo Electron Ltd., ranked No. 3, have agreed to a merger that values the combined entity at about US$29 billion (about 2.8 trillion yen).

The deal, which would bring together the leading US and Japanese vendors of chipmaking equipment, will push Europe's ASML Lithography NV, based in Bilthoven, Netherlands, which has specialized in the scanners used for patterning ICs using optical lithography, back into a distant second place. It also appears to be an early and significant move by recently appointed CEO Gary Dickerson, who joined Applied Materials in August 2013.

Applied and Tokyo said in a joint press release that the new company would be formed as a merger of equals and would have a new name, dual headquarters in Santa Clara and Tokyo, and dual listing on the Tokyo Stock Exchange and Nasdaq. The company is to be incorporated in the Netherlands.

Despite the merger-of-equals claim, the terms of the deal are that Tokyo Electron shareholders will receive 3.25 shares of the new company for every Tokyo Electron share held, and Applied Materials shareholders will receive one share in the new company for each Applied Materials share held. After the close, Applied Materials shareholders will own about 68 percent of the new company and Tokyo Electron shareholders about 32 percent.

No indication was given as to what the merged company will be called. The merger has been unanimously agreed to by the boards of directors of both companies but is subject to approval of both sets of shareholders and to regulatory approval. As a result, the companies do not expect the deal to close before the middle of 2014 and most likely to conclude in the second half of 2014, according to the press release.

The deal will produce a clear No. 1 company in the sale of a range of equipment for precision engineering and patterning for integrated circuits and displays, with about 25 percent market share. Applied Materials led the market in 2012 with about $5.51 billion in sales and 14.4 percent market share, according to a April 2013 report from market researcher Gartner Inc. Tokyo Electron was third, with $4.22 billion in sales and 11.1 percent share. ASML had sales in 2012 of $4.89 billion and a 12.8 percent market share, Gartner said.

The Applied-Tokyo deal has been brokered to cope with the exponentially increasing development of technologies for manufacturing at the leading edge, in both semiconductor circuits and display panels. ASML's own solution to this problem was an innovative equity-plus-research funding program that saw the firm raise billions of dollars while granting three leading chipmakers stakes in the company. Under the move pushed through in 2012, Intel, TSMC, and Samsung gained 15, 5, and 3 percent stakes, respectively.

Under the terms of the deal, Tetsuro Higashi, who currently serves as chairman, president, and CEO of Tokyo Electron, will serve the new company as chairman. Gary Dickerson, president and CEO of Applied Materials, will be CEO. Bob Halliday of Applied Materials will serve as Chief Financial Officer.

By: DocMemory
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