Applied Materials Inc. scrapped its $9.39-billion (U.S.) takeover bid for chip-making equipment rival Tokyo Electron Ltd., becoming the second deal to fall apart in less than a week after opposition by the U.S. Department of Justice.Getty Images/iStockphoto
Applied Materials Inc. scrapped its $9.39-billion (U.S.) takeover bid for chip-making equipment rival Tokyo Electron Ltd., becoming the second deal to fall apart in less than a week after opposition by the U.S. Department of Justice.
Proposed remedies from the two suppliers weren't enough to allay the government's concerns about the potential impact on competition, according to a statement Monday. Applied Materials and Tokyo Electron separately announced plans to buy back stock.
Tokyo Electron and Applied Materials first announced plans to combine through an all-stock deal in September, 2013, as a shrinking base of chip makers makes the earnings of equipments suppliers more volatile. Last Friday, Comcast Corp. also decided to drop its $45.2-billion offer for Time Warner Cable Inc. after objections from the Justice Department and Federal Communications Commission.
"Investors are disappointed. People expected the merger to create a market leader," Mitsushige Akino, Tokyo-based executive officer of Ichiyoshi Asset Management Co., said of the aborted chip-maker deal. "Now Tokyo Electron has to find a way to go it alone. If it doesn't, we can expect the shares to fall."
Applied Materials dropped 8.4 per cent to $19.97. Before Monday, the shares had declined 13 per cent this year, compared with a 2.9-per-cent gain in the Standard & Poor's 500 Index.
Tokyo Electron closed at ¥7,697 ($78.14) before the announcement. The stock has fallen 17 per cent in Tokyo this year, compared with a 15-per-cent gain for the benchmark Topix.
The Justice Department's antitrust division said in a statement that the remedy proposed by the companies wouldn't replace competition lost from the merger, particularly in the development of equipment for next-generation semiconductors. The government didn't provide details of the settlement proposal.
"The companies' decision to abandon this merger preserves competition for semiconductor manufacturing equipment," said Renata Hesse, a deputy assistant attorney-general. "The semiconductor industry is critically important to the American economy."
Applied Materials, based in Santa Clara, Calif., announced plans to buy back $3-billion (U.S.) of stock, while Tokyo Electron, with headquarters in Tokyo, will purchase ¥120-billion of its own shares, according to separate statements.
The companies make machines that prepare silicon wafers for imprinting with the circuits that turn them into processors capable of crunching numbers, showing video and connecting to mobile networks.
Intel Corp., Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. Ltd. now buy the majority of the production machines deployed by the industry and are the top three customers of both companies, according to data compiled by Bloomberg.
"Based on the DOJ's position, Applied Materials and Tokyo Electron have determined that there is no realistic prospect for the completion of the merger," Applied Materials said.