) --

Lam Research

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Wednesday agreed to acquire

Novellus Systems


for $3.3 billion in stock.

The deal calls for a swap of 1.125 Lam Research shares for each Novellus share. Based on a closing price of $39.48, the transaction values Novellus stock at $44.42 each, a premium of nearly 30% to Wednesday's close at $34.70. The merger between Lam and Novellus will be the fourth biggest semiconductor tie-up in 2011, according to



The move will allow Lam to supplement its etch and single-wafer semiconductor systems with Novellus's thin-film design capabilities to better compete in the consolidating semiconductor industry.

"This strategic combination positions Lam Research to lead the development of next-generation semiconductor manufacturing technology and productivity solutions at a time when growing semiconductor demand and increased device complexity are creating significant business opportunities," said Lam Research Chief Executive Steve Newberry in a press release.

With Novellus, Lam Research will add $1.3 billion in annual thin-film semiconductor sales to its existing $3.2 billion wafer and etch sales, as of 2010 annual data. Lam Research expects to see $100 million in annual cost synergies from the combination within two years.

In connection to the share exchange offer for Novellus, Lam Research also announced a $1.6 billion stock repurchase program to replace an existing program that was upped to $750 million in early September.

Both companies are struggling from a waning outlook for the semiconductor industry amid weak demand for computing and handset phone products. In the third quarter, Lam Research saw profits drop 63% to $71 million, while Novellus saw its profit slump by more than 30% to $51 million. Novellus turned a $262 million profit for 2010 after reporting losses during the recession.

If the merger closes as both companies expect by the second quarter of 2012, Martin Anstice will run the combined companies after taking over for current Lam Research CEO Steve Newberry when he steps down on Jan. 1 as previously announced.

Shares of Novellus rose over 20% to $41.80 in after-market trading after being halted on the pending deal news. Prior to the announcement Novellus had gained over 7% year-to-date beating the

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S&P 500 Index

, while Lam Research shares have fallen over 23% in 2011. After the deal announcement, Lam Research fell nearly 4% to $38.

Novellus's biggest shareholders are

Ameriprise Financial



, hedge fund

Eminence Capital



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, each with 5%-plus holdings according to filings with the

Securities and Exchange Commission


Goldman Sachs

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advised Lam on its purchase, while

Bank of America

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was the financial advisor to Novellus.

--Written by Antoine Gara in New York