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Applied Materials and Tokyo Electron Get Engaged

By Brian D. Pacampara, CFA - Sep 24, 2013 at 3:15PM

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A closer look at one of Tuesday's big deals.

While we don't believe in paying too much attention to buyout rumors and speculating on potential takeover targets, Fools should definitely try to keep up with M&A news that is officially announced -- just in case they're material to our investing thesis.

What: U.S. semiconductor equipment giant Applied Materials (AMAT -1.98%) announced today that it will merge with Japanese counterpart Tokyo Electron in a deal worth about $29 billion.

So what: The-all stock deal is basically an acquisition by Applied and values Tokyo Electron at $9.3 billion, representing a small premium of about 5% to Tokyo's closing valuation yesterday. The No. 1 (Applied) and No.3 (Tokyo) players in the chipmaking space are making the move to help fuel earnings growth amid continued industry weakness, but judging by its 8% stock pop today, Wall Street believes Applied is the big winner of the deal.

Now what: The companies expect the deal to close in the middle to second half of 2014 and EPS to be accretive one full year after that. "We are creating a global innovator in precision materials engineering and patterning that provides our new company with significant opportunities to solve our customers' high-value problems better, faster and at lower cost," Applied CEO Gary Dickerson said in a statement. "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." Of course, given that the deal is certain to face severe regulatory scrutiny in several countries, I wouldn't buy into that bullishness just yet.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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