Applied Materials to buy Varian Semiconductor for $4.9 billion

BANGALORE (Reuters) - Chip equipment maker Applied Materials will buy rival Varian Semiconductor Equipment Associates Inc for $4.9 billion in cash as it looks to cement its edge in chipmaking technology to meet the rising demand from smartphone and solar equipment makers.

Varian provides chipmakers with ion implantation gear for making integrated circuits, or chips, found in all modern electronic gadgets. It is a complex process of implanting ions around which the structure of the chip will eventually be built.

"Applied currently does not offer ion implanters, which is Varian's core offering, and Varian's presence in solar equipment outside of the semiconductor space should be a good fit for Applied Materials," Caris & Co analyst Ben Pang told Reuters.

"They paid for the company that has the right technology to be the market leaders for a number of years."

Spending on ion implanters account for about 3-5 percent of the $35 billion wafer fab equipment market, Pang said.

The Varian deal comes a month after Texas Instruments' acquisition of National Semiconductor for $6.5 billion, paying a rich 78 percent premium to merge two of the industry's oldest firms into a dominant force in analog microchips used in products ranging from phones to cars.

The deal, Applied's largest ever, will help it corner a larger share of the chip fabrication market as a provider of technology for the makers of higher-performance chips, particularly for mobile applications with faster speeds and longer battery life.

"In addition, Varian's technology has strong potential to extend into adjacent markets, including solar, display and light emitting diodes (LEDs)," the companies said.

Intel, the leading chipmaker, is due to make an announcement later on Wednesday, expected to relate to its new 22-nanometer production process due to start in November.

Varian, which counts GlobalFoundries, Hynix Semiconductor <000660.KS>, Intel , IBM , Micron Technology and Samsung Electronics <005930.KS> as its customers, entered the market for ion implanters in 1975 through the acquisition of Extrion Corporation.

BOOSTER DEAL

The Varian deal is expected to add to Applied Materials' adjusted earnings in the first year.

The two companies together compete with ASML Holding N.V. , Tokyo Electron Limited <8035.T>, KLA Tencor Corporation and Lam Research Corp .

The $63-per-share cash deal represents a 55 percent premium to Varian stock's closing price on Tuesday.

Applied expects to fund the deal with cash on hand and debt. It has secured a commitment for $2 billion, one-year bridge loan facility from JPMorgan Chase Bank, Citigroup Global Markets Inc and Morgan Stanley Senior Funding Inc.

Credit Suisse acted as financial adviser to Varian.

Varian will have to pay a termination fee of $147 million if it ends the deal, and if deal fails to get antitrust approvals, Applied will have to pay $200 million, the companies said.

Varian shares rose 51 percent in pre-market trade on Wednesday. They closed at $40.55 on Tuesday on Nasdaq. Applied shares, which closed at $15.24, rose 2.4 percent.

(Reporting by Himank Sharma and Saqib Iqbal Ahmed; Editing by Gopakumar Warrier)

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