October 21, 2015 / 11:30 AM / 3 years ago

Lam Research to buy KLA-Tencor in $10.6 billion deal

(Reuters) - Semiconductor equipment maker Lam Research agreed to buy rival KLA-Tencor Corp in a deal valued at about $10.6 billion, the latest in a string of acquisitions in the chip industry.

KLA-Tencor’s shares, which rose 18.5 percent to $63.85 in premarket trading, were still below Lam’s cash-and-stock offer of $67.02 per share.

Demand for cheaper chips and new products, as well as a drive by technology companies to consolidate suppliers, has led to record levels of dealmaking in the semiconductor industry this year.

The combined entity, to be helmed by Lam Chief Executive Martin Anstice, will command a 42 percent market share of the wafer fabrication equipment market and have pro forma annual revenue of $8.7 billion.

The two companies said they expected to realize $250 million in annualized cost savings within 18 to 24 months of closing of the deal and generate about $600 million in incremental annual revenue by 2020.

Both Lam and KLA-Tencor count Samsung Electronics Co Ltd and Taiwan Semiconductor Manufacturing Co Ltd (TSMC) as their major customers.

Among the big M&A deals in the semiconductor industry this year, Intel Corp agreed to buy Altera Corp for $16.7 billion in June and Avago Technologies Ltd said in May that it would buy Broadcom Corp for $37 billion.

Under the deal terms, KLA-Tencor stockholders can opt for $32 in cash, or 0.5 of a share of Lam’s common shares, or a combination of two, the companies said in a statement.

Lam’s shares were up 1.7 percent in pre-market trading.

Goldman Sachs is the financial adviser to Lam Research and Jones Day is providing legal counsel. Qatalyst Partners is the financial adviser to KLA-Tencor and Wilson Sonsini Goodrich & Rosati is its legal counsel.

Reporting by Supriya Kurane and Kshitiz Goliya in Bengaluru; Editing by Anupama Dwivedi and Anil D'Silva

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