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Lam Research, KLA-Tencor to Combine in $10.6 Billion Deal

Wednesday, October 21st, 2015

By Jeff Dorsch, Contributing Editor

Lam Research has agreed to acquire KLA-Tencor for $10.6 billion in cash and stock. The two giant suppliers of semiconductor capital equipment expect to close the transaction in mid-2016, subject to regulatory and shareholder approval.

The mammoth deal was announced on the same day as Western Digital saying it will purchase SanDisk for about $19 billion in cash and stock, continuing the yearlong trend of consolidation and megamergers in the semiconductor industry, and now in IC equipment, as well.

The news of the proposed tie-up between Lam and KLA-Tencor was greeted enthusiastically by industry analysts and perhaps less so at 3050 Bowers Avenue in Santa Clara, California – the headquarters of Applied Materials.

Srini Sundararajan, an analyst with Summit Research Partners, wrote of the blockbuster deal, “This is just what the doctor ordered. It removes excessive dependence of LRCX on memory and excessive dependence of KLAC on foundry/logic.  We expect minimal opposition to this deal from the various jurisdictions, rather easily handled.  Second, this deal is quite negative for Applied Materials (AMAT) and Hermes Microvision and perhaps for ASML also.  In the case of AMAT, their process diagnostics and control division being based in Israel does not allow of meshing of capabilities, and product synergies really don’t exist.  In the case of Hermes Microvision, since etch is the pre-dominant user of e-beam inspection due to testing of contacts, a combination of KLAC and LRCX with both e-beam and etch capabilities can be lethal.”

Both companies have experience in large mergers, with Lam acquiring Novellus Systems in 2012. KLA Instruments merged with Tencor Instruments in 1997. And both companies are generally active in strategic acquisitions.

The megadeal values KLA-Tencor common stock at roughly $67.02 per share, a premium of about 24 percent to KLAC’s closing price of $53.86 on Tuesday (October 20).

With the closing of the deal, KLA-Tencor shareholders will own around 32 percent of the combined company, which will be called Lam Research Corporation. Martin Anstice, president and chief executive officer of Lam Research, will serve as the combined company’s CEO. Lam Chairman Steve Newberry will continue in that post. Upon closing, two members of the KLA-Tencor board of directors will join the Lam board.

Lam Research also reported net income of $288.7 million on revenue of $1.6 billion for the quarter ended September 27, compared with net income of $141.1 million on revenue of $1.15 billion for the same quarter a year ago.

KLA-Tencor reported results for its fiscal first quarter ended September 30, with net income of $104.9 million on revenue of $642.64 million. That compared with year-ago net income of $72.23 million on revenue of $642.9 million.

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