Applied Materials raises Kokusai Electric takeover bid to $3.5 billion

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Applied Materials buys Kokusai Electric
Image: Applied Materials

January 4—Applied Materials raised its takeover bid of Kokusai Electric Corporation to $3.5 billion, a 59 percent increase from its initially announced offer. The American semiconductor manufacturing equipment maker said it would purchase the Japanese firm from investment group KKR for $2.2 billion in July 2019.

The corporation told Bloomberg it increased its payout amount because of the chip sector’s explosive growth in 2020.

Finally Closing the Deal

Applied Materials anticipated closing its acquisition of Kokusai Electric last summer, but outside factors complicated the transaction.

Namely, the ongoing U.S.-China trade war prevented the manufacturer from completing its 18-month old combination agreement. Because of increased tensions between the two superpowers, large corporate acquisitions, especially tech sector deals, have faced increased regulatory scrutiny in North America and East Asia. Irish, Israeli, Japanese, South Korean, and Taiwanese market officials also needed to approve the tie-up.

Ultimately, the complexity of the merger led to it initially missing its closing time frame of July 2020.

But Applied Materials stated it now only needs the go-ahead from Beijing’s State Administration of Market Regulation. The semiconductor tool provider said it had made headway in its negotiations with the Chinese officials. The firm’s renewed sense of optimism about the tie-up prompted it to declare March 19 as its new closing date.

Wall Street reacted positively to the acquiring company’s progress update as its stock price rose by 3.2 percent post announcement.

Why Applied Materials is Paying More to Acquire Kokusai Electric

While Applied Materials currently has a market value of over $80 billion, bumping up a takeover deal by $1.3 billion is noteworthy. However, following the post-coronavirus pandemic digitalization wave, semiconductors have become a much more valuable commodity. That change has given the American equipment maker added incentive to bring the Japanese company under its umbrella.

In July 2019, Applied Materials had an interest in Kokusai Electric because of the potential held by its technology portfolio. Back then, market watchers noted the smaller firm’s batch wafer and ultra-thin film processes are ideal for making components for data centers, smartphones, and televisions. As COVID-19 prompted increased demand for online services and personal electronics, its tools have become more sought after by chipmakers.

As the American firm watched its target asset begin to realize its potential, its purchase agreement grew significantly. Securing Kokusai Electric meant meaningfully expanding its market share and tightening its relationships with important customers such as Intel, Samsung, and Taiwanese Semiconductor Manufacturing Corporation.

On the other hand, the company knows having the deal fall apart would mean losing a crucial advantage during an industry boom period. In the current marketplace, KKR would not have to wait long for another buyer to make an offer.

Applied Materials likely calculated that owning Kokusai Electric’s technology more than justifies a 59 percent jump in closing costs. The equipment maker also experienced an 18 percent annual surge in revenue last year because of the digitalization trend. The corporation’s pandemic related sales growth probably made its increased capital expenditure more palatable to its stakeholders.

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