US-based Applied Materials Inc and Tokyo Electron Ltd announced a $10 billion merger deal on Tuesday, highlighting what experts see as pressures faced by the electronic industry.
The all-stock deal would be the biggest foreign takeover of a Japanese manufacturer and is set to create a new company with a market value of $29 billion between the world’s no. 1 and no. 3 chip-equipment suppliers.
While board representation is to be split evenly, Applied Materials shareholders will own 68% of the new company.
The company will be based in the Netherlands, with Tetsuro Higashi, current head of Tokyo Electron, serving as chairman and Applied Materials CEO Gary Dickerson as chief executive.
“This is a historic move,” said Michael Splinter, who is currently Applied’s chairman and will become one of the two vice chairmen after the deal will be complete in 2014.
The acquisition came as a surprise in part because of Tokyo Electron showed no signs of needing one with its solid balance sheet.
Edward Johnson, a partner at law firm Orrick, Herrington & Sutcliffee, said Tokyo Electron’s move to cede control to a foreign rival could encourage other Japanese firms to consider similar moves.
“I don’t think it’s a one-off. It has broader implications,” Johnson said.
Though the two companies both make devices used to etch material from wafers, each specializes in a different stage in the manufacturing process. Analysts said one or the other tends to have a much bigger market share for that specific chore.
“It’s like a merger of Google and Microsoft,” said Dan Hutcheson, an analyst at VLSI Research.
By: Maesie Bertumen
Image of semiconductor chip: NeferMerit/Flickr