By Nathan Layne
TOKYO, Sept 26 Applied Materials Inc's
$10 billion acquisition of Tokyo Electron Ltd is more
than just a milestone foreign takeover in Japan - it's a rare
forward-looking deal in a country where selling to an overseas
rival is usually a last resort.
U.S.-based Applied Materials, the world's largest maker of
chipmaking equipment, and third-ranked Tokyo Electron announced
the all-stock deal late on Tuesday. On
completion, it would be the biggest foreign takeover of a
Japanese manufacturer. While board representation is to be split
evenly, Applied Materials shareholders will own 68 percent of
the new company, keeping them firmly in control.
Analysts were surprised by the move in part because Tokyo
Electron has a solid balance sheet and didn't need a deal to
survive. That makes the deal stand out against other big inbound
transactions, many of which involved a struggling target - such
as Citigroup Inc's $16 billion acquisition of broker Nikko
Cordial in 2007-08 and Renault SA's $5 billion
injection into Nissan Motor Co almost a decade earlier.
Edward Johnson, a partner at law firm Orrick, Herrington &
Sutcliffe, said the willingness of a blue-chip Japanese company
like Tokyo Electron to cede control to a foreign rival could
encourage other Japanese firms to consider similar moves.
"I don't think it's a one-off. I think it has broader
implications," said Johnson, whose practice includes advising
foreign companies on investments in Japan.
While Japanese companies spent a record $83 billion on
overseas acquisitions in 2012, inbound deals totalled just $15
billion. Over the past 10 years, there have been far fewer
foreign acquisitions in Japan than anywhere else in Asia.
Foreign deals accounted for just 5.85 percent of acquisitions in
Japan compared to Asia ex-Japan's 26.48 percent, Datastream data
Many international companies have refrained from making
major investments in Japan due to a general perception the
country is not open to foreign capital and a belief they would
have trouble cutting costs.
In a development last year that seemed to confirm those
concerns, a state-backed fund emerged to lead a bailout of
struggling chipmaker Renesas Electronics Corp, beating
off a rival bid by U.S. private equity firm KKR & Co.
Prime Minister Shinzo Abe has made inviting foreign
investment one of the components of his strategy to revive the
world's third-largest economy, and investment bankers hope the
Tokyo Electron deal will provide a spark.
An executive at a European investment bank said his firm was
helping foreign clients scout possible targets among Japanese
electronics and auto parts makers, although the size of those
transactions would be much smaller than the Tokyo Electron deal.
Ken Siegel, managing partner at law firm Morrison & Foerster
in Tokyo, said private equity funds continue to seek
opportunities in Japan, but it could take time before corporate
buyers follow Applied Materials' lead.
"You would expect this would lead to some strategic
transactions as well," Siegel said, referring to the Tokyo
Electron deal. "This is probably the first one. I don't see a
tonne of other strategic inbound deals lined up right this