The best possible merger in the Semiconductor Capital Equipment Business history!

A new powerhouse to dominate over AMAT
Combination of best of Breeds
KLAC shareholders get $32 cash plus stock

The wedding invitation…….
Lam Research Corporation (NASDAQ: LRCX) (“Lam”) and KLA-Tencor Corporation (NASDAQ: KLAC) (“KLA-Tencor”) today announced that they have entered into a definitive agreement, unanimously approved by the boards of directors of both companies, for Lam Research to acquire all outstanding KLA-Tencor shares in a cash and stock transaction.

KLA-Tencor stockholders will be entitled to elect to receive for the shares of KLA-Tencor stock they hold the economic equivalent of $32.00 in cash and 0.5 of a share of Lam Research common stock, in all-cash, all-stock, or mixed consideration, subject to proration as more fully described in the merger agreement. The transaction values KLA-Tencor at approximately $67.02 per share, or $10.6 billion in equity value based on the closing stock price of Lam on October 20, 2015.

This combination will create unmatched capability in process and process control, delivering optimized results in partnership with its customers by reducing variability and accelerating yield, ultimately helping the semiconductor industry extend Moore’s Law and performance scaling generally.
The combined company will have approximately $8.7 billion in pro forma annual revenue

Both a powerhouse and a dream team in SemiCap…
Much as the merger between Lam and Novellus seemed to be talked about for quite some time before it finally happened so too has the combination of Lam and KLA been the subject of speculation especially after the announced merger of AMAT and TEL would seem to have forced the reaction from both companies. Now the combination is announced without the threat of the AMAT merger and puts the resulting Lam into a very dominant position. We think there is a clear strategic benefit of putting process control together with a process company as we get to ever smaller and difficult dimensions of Moore’s law.

A torpedo in the side of AMAT…
After reeling from the failed merger with TEL and trying to regain its momentum and composure , Applied Materials has just been hit with a merger that will leave it in second place., dazed and confused. The combined LAM and KLA creates a powerhouse in the semicap industry which is looking a lot more like a duopoly (without litho…)

We told you so…..
Way back in April of 2014 we both predicted the combination and talked about the company’s new lead product.

Recently merged KLAM’s first new product..
The recently merged combination of KLA and Lam (ticker KLAM) introduced its first product as a joint company the “Characteristic Highlighting On Wafer Defect Analyzer” (CHOWDA). A spokeswoman for the company, Sharee Lewis said ” The new KLAM CHOWDA product will be available in two implementations to account for regional technical differences. Introduction of the product will start in the summer”.

The Stocks…
This is obviously a no brainer, huge positive for LAM and a huge negative for Applied. Likely a negative for smaller process control and metrology companies as they become less relevant.

Adds to the $100B in announced Semiconductor deals…
Spring is in the air and the urge to merge clearly continues to be very very strong especially as valuations remain low and attractive.

Will the deal get through?
We think this is going to be the obvious biggest issue after the failed AMAT & TEL merger. We think there will likely be opposition in the semi industry but probably less so than we heard the screaming related to AMAT/TEL. While maybe not overjoyed , the combination makes a lot of sense for customers and feels a lot less negative than the failed AMT/TEL

We will have a lot more after the conference call…

Robert Maire
Semiconductor Advisors LLC