9-24-13 8:47 AM EDT | Email Article

By Daisuke Wakabayashi and Hiroyuki Kachi


TOKYO (MarketWatch) -- Applied Materials Inc. agreed to acquire Tokyo Electron Ltd. in a deal valuing the Japanese semiconductor production equipment maker at $9.3 billion, creating a giant in the chip and display manufacturing-tools sector.


The deal announced Tuesday is effectively a takeover of Tokyo Electron by Applied Materials (AMAT) and values the firm at a modest premium to its market value of 872.3 billion yen ($8.8 billion). Shareholders of Applied Materials, which is valued at $19.7 billion under the deal, will own 68% of the new company. Both the CEO and CFO of the new company will come from Applied Materials.


The two companies took pains to show that deal was a merger of equals, saying the new company would be incorporated in the Netherlands and each company would have an equal number of representatives on the 11-member board with the last representative being a mutually-agreed upon candidate.


"We believe the combination will accelerate our momentum for profitable growth, increase the value we deliver to shareholders and create great opportunities for our employees," said Applied Materials Chief Executive Gary Dickerson, who will serve as CEO of the new company. Tokyo Electron CEO Tetsuo Higashi will become chairman of the new entity.


As companies reliant on capital spending by chip and display firms competing in the volatile electronics sector, the earnings of both companies reflect the boom-and-bust cycles in those markets. The companies said that they can tap a wide range of new materials engineering to drive down equipment costs for customers.


The deal comes at a troubling time for Japan's once powerful semiconductor industry. Last year, Elpida Memory Inc. filed for bankruptcy protection while another domestic chip maker, Renesas Electronics Corp., needed a Yen200 billion bailout from the Japanese government.


Under the accord, one Tokyo Electron share will be exchanged for 3.25 shares of the new entity, which will be valued at approximately $29 billion. Meanwhile, one Applied Materials share will exchanged for one share of the new company.


The companies said the deal is expected to close in the mid- to second-half of 2014, pending regulatory and shareholder approval. Once completed, the deal will result in $250 million in cost savings by the end of the first fiscal year of the new entity, with that total growing to $500 million by the third fiscal year, the companies said.


(An expanded version of this article appears on wsj:com http://online.wsj.com/article/SB10001424052702303759604579094770528224330.html?mod=mktw.)

-Daisuke Wakabayashi; 415-439-6400; AskNewswires@dowjones.com


Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

09-24-13 0847ET

Copyright (c) 2013 Dow Jones & Company, Inc.
Copyright 2014 MarketWatch
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