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Applied Materials to buy rival Tokyo Electron

Bloomberg

Applied Materials Inc., the world’s largest supplier of chip-making equipment, has agreed to acquire Tokyo Electron Ltd., its closest rival, for $9.39 billion (¥926 billion) in stock, in the largest bid by a foreign corporation for a Japanese firm in six years.

Gary Dickerson, who became chief executive officer of Applied Materials on Sept. 1, will serve as CEO of the combined company, the two companies said Tuesday.

Tokyo Electron intends to complete the deal as early as the middle of next year, CEO Tetsuro Higashi said. Shareholders of Applied Materials, based in Santa Clara, California, will own 68 percent of the new entity.

The purchase is the largest of a Japanese company from outside the country since Citigroup Inc.’s $8 billion (about ¥790 billion) deal for a majority stake in Nikko Cordial Corp. in 2007, data compiled by Bloomberg News show.

Dickerson is moving to consolidate the industry across continents amid slowing demand for equipment used to prepare silicon in the early stages of chip fabrication. Applied Materials in August forecast revenue that missed analysts’ estimates for a second straight quarter, amid a record slump in the personal computer market and muted semiconductor demand.

“It’s a defensive strategy because R&D costs are going up and the number of customers is going down. This tells you there’s a problem in the industry,” said Amir Anvarzadeh, a manager of Japanese equity sales at BGC Partners Inc. in Singapore.

Manufacturers are consolidating as output shifts toward semiconductors for mobile phones and tablet computers, which require more advanced equipment.

The Netherlands’ ASML Holding NV, Europe’s No. 1 supplier of chip-making tools, completed a €2.81 billion (¥373 billion) purchase of San Diego-based Cymer Inc. in May to expand in extreme ultraviolet lithography technology. In 2011, Lam Research Corp. agreed to buy Novellus Systems Inc. for about $3.3 billion in stock, combining in a challenge to Applied Materials.

The Applied Materials offer values Tokyo Electron at 16.5 times earnings before interest, taxes, depreciation and amortization. This compares with the median of about 11 times for more than 60 similar deals, data compiled by Bloomberg News show.

Shares of Applied Materials have climbed 40 percent so far this year. Tokyo Electron shareholders will get 3.25 shares for each one they hold in the company, and Higashi, the firm’s CEO, will serve as chairman of the new entity. Tokyo Electron reported a ¥3 billion loss for the three months through June 30.