Tokyo Electron takeover could be a mold-breaker for Japan

Wed Sep 25, 2013 3:09pm EDT
 
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By Nathan Layne

TOKYO (Reuters) - 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 totaled just $15 billion.

HOLDING OFF

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.   Continued...

 
Tokyo Electron Ltd Chairman and President Tetsuro Higashi (L) and Applied Materials Inc Chief Executive Officer Gary Dickerson attend their joint news conference in Tokyo, in this photo taken by Kyodo September 24, 2013. REUTERS/Kyodo