US chip tool makers in $3.3bn merger

Chip tool makers Lam Research and Novellus Systems have announced a $3.3bn merger on the same day the Gartner research firm predicted a 20 per cent decline in spending on semiconductor equipment in 2012.

The two Silicon Valley companies said the merger was driven by significant synergies between their areas of equipment expertise: Lam supplies fabrication equipment for the etching of silicon wafers and Novellus is a market leader in enabling surface preparation and thin-film depositions on the wafers.

Gartner predicted on Wednesday that worldwide spending on chip equipment would fall the most in 2012 in the area of wafer fab equipment, falling 22.9 per cent to $26.8bn. It predicted spending would shrink 19.5 per cent overall due to a “slowing macro economy, high inventories and a sluggish PC industry”.

Lam will acquire Novellus in an all-stock transaction valued at around $3.3bn and the Lam Research name will be retained. Cost savings of around $100m a year are expected by the end of 2013 and the deal is expected to be accretive to Lam’s earnings within one year of the transaction’s close.

Lam said the combined company would be well-positioned as the chip industry moves to next-generation technologies – ones that will require considerable investment as chips adopt 3D structures and the size of the circular wafers they are cut from grows from 300mm in diameter to 450mm.

Lam also announced a $1.6bn stock buy-back programme. Its shares were down 4 per cent at $37.90 in extended trading on the news, with Novellus shares up nearly 20 per cent at $41.42. The transaction valued Novellus at $44.42 a share, a 28 per cent premium on its closing price of $34.70.

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