Applied Materials to buy Kokusai for $2.2 billion to boost memory chip business


(Reuters) – U.S. chip gear maker Applied Materials Inc (AMAT.O) on Monday agreed to buy Japanese peer Kokusai Electric for $2.2 billion from KKR & Co Inc (KKR.N), as it bets on rising demand for memory chips used in data centers, 5G phones and AI-powered devices.

FILE PHOTO: Applied Materials’ new corporate signage photo in Santa Clara, California, U.S. is shown in this image released on August 22, 2016. Courtesy Applied Materials/Handout via REUTERS/File Photo

The acquisition comes against the backdrop of a glut in the memory chip market due to a decline in demand from smartphone makers that has squeezed prices and weighed on sales of chipmaking equipment.

Shares of Applied Materials rose 6% to $47.48 in early trading.

The deal could be scrutinized by Chinese authorities in the face of ongoing trade tensions between the United States and China, which last year derailed Qualcomm Inc’s (QCOM.O) $44 billion acquisition of NXP Semiconductors (NXPI.O).

While the last major round of talks between the two largest economies collapsed in May, they agreed on Saturday to restart trade negotiations.

Apart from China, the acquisition would need approval from Israel, Ireland, Japan, Korea and Taiwan, Applied Materials Chief Financial Officer Dan Durn said on a call with analysts.

It does not require U.S. DoJ approval, Durn said.

MEMORY BOOST

The deal comes less than two years after KKR took control of Hitachi Kokusai in a $2.2 billion deal. The Financial Times had reported in February that the private equity firm was in talks with two Chinese buyers for the “full or partial” sale of the company.

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Kokusai, which counts Samsung (005930.KS), SK Hynix (000660.KS), Toshiba (6502.T) and Micron (MU.O) among its top customers, reported revenue of $1.24 billion as of March 2018.

“AMAT needs to acquire a $1B+ revenue business to make a difference to its revenue and earnings, so this makes sense,” Cowen and Co analysts wrote in a client note.

The deal would push the U.S. company’s share of the chipmaking equipment market to above 20% from 18%, according to the Nikkei, which had earlier reported on the deal.

It expects the deal to close within a year and immediately add to its adjusted earnings per share.

Goldman Sachs & Co LLC served as exclusive financial adviser, and Hogan Lovells and Cleary Gottlieb Steen & Hamilton LLP served as legal counsel for Applied Materials.

Reporting by Takashi Umekawa in Tokyo and and Akanksha Rana in Bengaluru; Editing by Christopher Cushing and Anil D’Silva



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