– Helps customers extend Moore’s Law by delivering variability reduction at the atomic level
– Company will serve ~ 42% of Wafer Fabrication Equipment (WFE) market immediately upon closing
– Expect to realize $250 million in annualized cost synergies within 18-24 months of closing
– Accretive to non-GAAP earnings and free cash flow per share during the first 12 months
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 revenue1. The transaction is expected to be accretive to Lam’s non-GAAP earnings and free cash flow per share during the first 12 months post-closing. The combined company expects to realize $250 million in annualized cost synergies within 18 to 24 months of closing and anticipates generating approximately $600 million in incremental annual revenue by 2020 through improved differentiation of each company’s products and creation of new capabilities.
“The pairing of Lam Research and KLA-Tencor brings industry leadership in process and process control together, accelerating our capability to address our customers’ most difficult challenges as they scale to meet the market demands of lower power, higher performance, and smaller form factors,” said Martin Anstice, Lam’s president and chief executive officer. “Lam Research and KLA-Tencor’s shared commitment to collaboration and building strong customer trust, along with our respective track records of innovation, product leadership, and operational excellence, position us as a combined company to deliver the higher levels of technology differentiation and speed to solutions that are critical to our customers’ long-term success.”
“I strongly believe that this transaction represents a great outcome for all of KLA-Tencor’s key stakeholders,” said Rick Wallace, president and chief executive officer of KLA-Tencor. “The combined company will be uniquely positioned to work collaboratively with our customers to help them meet the challenges of FinFET, multi-patterning and 3D NAND development. Given the complementary nature of the two companies’ product offerings and technologies as well as the lack of product overlap, the combination will create an industry leader with greater opportunities for our respective employees for professional development and growth. Lastly, this transaction will benefit our stockholders who will receive compelling upfront value, in addition to the opportunity to own a meaningful stake in an industry leader and participate in the upside potential created by the combination.”
Compelling Strategic and Financial Benefits
Creates Premier Semiconductor Capital Equipment Company: Strengthened platform for continued outperformance, combining Lam’s best-in-class capabilities in deposition, etch, and clean with KLA- Tencor’s leadership in inspection and metrology
Accelerates Innovation: Increased opportunity and capability to address customers’ escalating technical and economic challenges
Broadens Market Relevance: Comprehensive and complementary presence across market segments provides diversity, scale and value creating innovation opportunities
Significant Cost and Revenue Synergies: Approximately $250 million in expected annual on-going pre-tax cost synergies within 18-24 months of closing the transaction, and $600 million in annual revenue synergies by 2020
Accretive Transaction: Increased non-GAAP EPS and free cash flow per share during the first 12 months post-closing
Strong Cash Flow: Complementary memory and logic customer base, operational strength, and meaningful installed base revenues strengthen cash generation capability Anstice concluded, “We have tremendous respect for the company KLA-Tencor employees have built over nearly 40 years — their culture, technology, and operating practices. I have no doubt that our combined values, focus on the customer, and complementary technologies will create a trusted leader in our industry, capable of creating significant opportunity for profitable growth and in turn delivering tremendous value to all of our stakeholders. This is the right time for the right combination in our industry.”
Transaction Terms and Approvals Required
Under the terms of the definitive agreement, Lam will acquire KLA-Tencor for approximately $5.0 billion in aggregate cash consideration and approximately 80 million shares of Lam common stock, valued at approximately $5.6 billion as of October 20th, 2015. KLA-Tencor stockholders are expected to own approximately 32% of the combined company on a pro forma basis.
Each KLA-Tencor stockholder may elect to receive, for all shares of KLA-Tencor common stock they hold at the closing of the transaction, and on a per share basis, one of the following: mixed consideration, consisting of both (i) 0.5 of a share of Lam Research common stock and (ii) $32.00 in cash; all-stock consideration, consisting of a number of shares of Lam Research common stock equal to (i) 0.5 plus (ii) $32.00 divided by the volume weighted average price of Lam Research common stock over a five trading day period ending shortly before the closing of the transaction (“the five day VWAP”); or all-cash consideration, consisting of (i) $32.00plus (ii) 0.5 times the five day VWAP. KLA-Tencor stockholders who do not make an election will be deemed to have elected the mixed consideration. All-cash and all-stock elections will be subject to proration in accordance with the terms of the merger agreement. The stock component of the consideration is expected to represent a tax-free exchange to KLA-Tencor stockholders.
Lam intends to fund the cash consideration for the transaction and repayment of KLA-Tencor’s currently outstanding term loan using approximately $1.9 billion of cash on hand from the combined companies and approximately $3.9 billion in debt financing. The company intends to provide a direct, unconditional guarantee of KLA-Tencor’s senior notes upon the closing. Lam has obtained commitment for $4.2 billion of bridge financing for the transaction from Goldman Sachs Bank USA and Goldman Sachs Lending Partners LLC. Lam is committed to maintaining its investment grade rating. The transaction is not subject to financing.
The transaction is expected to close in mid-calendar year 2016, pending the receipt of customary regulatory approvals. In addition, the transaction is subject to customary closing conditions, including the adoption by KLA-Tencor’s stockholders of the merger agreement and the approval by Lam Research’s stockholders of the issuance of shares in the transaction. Given their complementary product lines and the significant industry benefits the transaction will enable, the companies believe that they will be able to obtain the requisite regulatory approvals on a timely basis.
Company, Management and Board of Directors
The combined company will use the name Lam Research Corporation and continue to trade on the Nasdaq Global Select MarketSM under the symbol LRCX.
Martin Anstice CEO will lead the combined company, and Lam Research and KLA-Tencor anticipate a combined company leadership team with strong representation from both companies across all functions. Steve Newberry, Lam Research’s Chairman, will continue in that role and two board members from KLA-Tencor will join the combined company board effective upon closing.
Both companies announced results for the quarters ended September 27, 2015, in the case of Lam Research, and September 30, 2015, in the case of KLA-Tencor, concurrent with the transaction announcement. The full details of such results can be found in a separate release from each company.
Goldman Sachs is acting as exclusive financial advisor to Lam Research and Jones Day is providing legal counsel. Qatalyst Partners is acting as financial advisor to KLA-Tencor, and Wilson Sonsini Goodrich & Rosati is providing legal counsel.
Conference Call and Webcast Details
The companies will hold a joint conference call today at 8:00 a.m. EDT (5:00 a.m. PDT) to discuss this announcement. The conference call can be joined by dialing 1-888-438-5453, Conference ID 4899617, within the U.S. and 1-719-325-2494, Conference ID 4899617, for all other locations. To access the webcast, visit the Investors section of Lam’s web site at http://www.lamresearch.com and click on the Calendar/Webcasts section to view the details. A webcast replay will be available on the Lam Research web site approximately three hours after the conference call concludes.
About Lam Research
Lam Research Corp. (Nasdaq: LRCX) is a trusted global supplier of innovative wafer fabrication equipment and services to the semiconductor industry. Lam’s broad portfolio of market-leading deposition, etch, and clean solutions helps customers achieve success on the wafer by enabling device features that are 1,000 times smaller than a grain of sand, resulting in smaller, faster, more powerful, and more power-efficient chips. Through collaboration, continuous innovation, and delivering on commitments, Lam is transforming atomic-scale engineering and enabling its customers to shape the future of technology. Based in Fremont, Calif., Lam Research is a Nasdaq-100 Index® and S&P 500® company whose common stock trades on the Nasdaq Global Select MarketSM under the symbol LRCX. For more information, please visit http://www.lamresearch.com. (LRCX-F)
KLA-Tencor Corporation, a leading provider of process control and yield management solutions, partners with customers around the world to develop state-of-the-art inspection and metrology technologies. These technologies serve the semiconductor, LED, and other related nanoelectronics industries. With a portfolio of industry-standard products and a team of world-class engineers and scientists, the company has created superior solutions for its customers for nearly 40 years. Headquartered in Milpitas, Calif., KLA-Tencor has dedicated customer operations and service centers around the world. Additional information may be found at www.kla-tencor.com. (KLAC-F)
For the complete press release, click here.