AMAT, Tokyo Electron Merger Named Eteris - Analyst Blog


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Last year, the world's biggest maker of capital equipment used for manufacturing semiconductors, Applied Materials Inc. ( AMAT ) agreed to merge with Japanese semiconductor equipment maker Tokyo Electron. The company has now announced that the combined company will be called Eteris. It also revealed the logo of the new company.

In September last year, Applied Materials had declared that it will merge with Tokyo Electron in a $9.39 billion all-stock deal to create a new company, with predicted market value of $29 billion at that point of time. While the proposed business combination has been approved by shareholders of both companies, it is still under antitrust review by several regulators. The declaration of the new company's name and logo are the latest developments. The transaction is expected to close by the second half of 2014.

The new company will be incorporated in The Netherlands, with headquarters in both Tokyo and Santa Clara, CA. The stock of the new entity will be listed on both the Nasdaq and the Tokyo Stock Exchange. As per the deal, Applied shareholders will get one share of the new company for every share that they hold, while Tokyo Electron shareholders will get 3.25 shares for each of their shares.

Both Applied and Tokyo Electron make machines that are used to manufacture semiconductors, flat-panel displays and solar photovoltaic products. The deal combining two major players in the global chip industry will be one of the biggest tech mergers in recent years. With its merger with Tokyo Electron Limited, Applied Materials will further strengthen its leadership position in the semiconductor capital equipment market.

The two equipment companies are aware of the changing needs of the market, i.e. PCs giving way to mobile devices such as tablets and smartphones; TVs getting more connected and increasing energy needs driving the implementation of alternative energy sources such as solar.

Developing new manufacturing technologies is a very expensive process and equipment makers often need to get together for the purpose. However, because of the merger, Applied will be able to keep ownership in-house, which will enhance its competitive edge.

The deal is expected to be accretive to pro forma earnings in the first full year of operation for the combined entity. Moreover, cost synergies are expected to be $250 million by the end of first fiscal year of operation and $500 million per annum within the third year of operation.

Also, the company plans to start a share buyback program worth $3 billion within a year after the transaction closes. In addition, pooling the knowledge, resources and expertise of both the companies will help to improve Eteris' technological advantage.

Applied shares currently have a Zacks Rank #3 (Hold). Other stocks that are performing well include Micron Tech. ( MU ), Sandisk Corp ( SNDK ) and Cisco Systems ( CSCO ). All these stocks carry a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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