Lam Research, KLA-Tenor Call Off Merger on Antitrust Concerns -- Update

By Don Clark and Ezequiel Minaya 

Lam Research Corp. and KLA-Tencor Corp. called off a planned $10.6 billion merger announced nearly a year ago, citing opposition by the Justice Department on antitrust grounds.

The department said late Wednesday it had serious concerns that the deal would harm competition in the market for machines used to manufacture computer chips.

Lam, which Gartner Inc. ranks as the second-largest maker of such machines behind Applied Materials Inc., had agreed to buy KLA-Tencor, the No. 5 supplier. The companies said they had decided mutually to call off the deal, a move that calls for no termination fee to be paid by either party.

The decision by the two Silicon Valley companies comes as little surprise, following a joint announcement in August that they might not be able to receive necessary government approvals by Oct. 20, when they hoped to close the deal.

Lam and KLA-Tencor lead different portions of a market Gartner put at $33.6 billion in 2015. Lam is the largest maker of machines that deposit or etch away materials on the silicon wafers used to make computer chips. KLA-Tencor's machines, by contrast, are used to measure and inspect circuitry on chips during the manufacturing process, for purposes that include spotting defects.

Dan Hutcheson, an analyst at VLSI Research, said acquiring KLA-Tencor could have given Lam access to information about customers' technology and future directions that would work hurt competitors, including Applied Materials and Tokyo Electron Corp. Lam, in theory, would have an edge in knowing what features to add to its products, he said.

"The proposed transaction presented concerns about the ability of the merged firm to foreclose competitors' development of leading edge fabrication tools and process technology on a timely basis," said Renata Hesse, acting assistant attorney general of the Justice Department's antitrust division, in a statement issued late Wednesday.

KLA-Tencor said Wednesday that the companies decided to terminate the merger after the Justice Department told the companies it wouldn't "continue with a consent decree that the parties had been negotiating." It didn't elaborate. Companies sometimes negotiate consent decrees with government agencies in connection with mergers, which in some cases include agreements to spin off business units.

KLA-Tencor expressed disappointment with calling off the deal, as did LAM. "We believe that this proposed combination would have resulted in compelling benefits for our customers, employees and stockholders, as well as accelerate innovation in the broader semiconductor industry," said Martin Anstice, Lam's president and chief executive officer, in prepared remarks.

Mr. Anstice said Lam would explore other collaboration opportunities with KLA. The companies scheduled separate conference calls Thursday to discuss their announcement.

Lam slid 0.8% on the news after hours to $95.40, while KLA sank 3.4% to $68.80.

The Lam-KLA deal is the second big deal among makers of chip production tools to fall victim to U.S. government opposition. Applied Materials last year dropped its plan to buy Tokyo Electron, after the Justice Department raised antitrust objections. That deal, announced in September 2013,(CQ) was expected to create a company with a market value of $29 billion.

--Brent Kendall contributed to this article.

Write to Don Clark at [e-mail] and Ezequiel Minaya at [e-mail]

(END) Dow Jones Newswires

October 05, 2016 20:27 ET (00:27 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.