Applied Materials (AMAT) to Merge With Tokyo Electron

NEW YORK (TheStreet) -- Semiconductor manufacturer Applied Materials  (AMAT) and Tokyo Electron announced the two companies will form one, in a $29 billion all-stock merger. The merger is expected to finalize in the middle to second half of 2014.

"It's a huge deal - one that would create a powerhouse and give this semiconductor-equipment company a high level of clout with their chief customers, Intel (INTC) and Samsung," said Jim Cramer in his premium 'Real Money' column.

The merger, unanimously approved by both companies' Boards, will see dual headquarters in Tokyo and Santa Clara, California. Tokyo Electron chairman and CEO Tetsuro Higashi will become chairman of the yet-to-be named company, and Applied Materials CEO Gary Dickerson will be CEO.

"We believe the combination will accelerate our momentum for profitable growth, increase the value we deliver to shareholders and create great opportunities for our employees," said Dickerson in a joint press release.

According to the agreement, Applied Materials shareholders will have a 68% ownership stake in the new company and receive one share for every share currently held. Tokyo Electron shareholders will have a 32% stake and receive 3.25 shares for every share currently held.

Applied Materials share were 9.1% higher to $17.44 at close of trading and 82.25 million shares changed hands compared to its one-month daily average trading volume of 11.01 million. Overall, Applied Materials led the S&P 500 which was down 0.26%. Tokyo Electron closed 11.72% higher on the Tokyo Stock Exchange.

TheStreet Ratings team rates Applied Materials as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate Applied Materials a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to its closing price of one year ago, Applied Materials' share price has jumped by 39.9%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, Applied Materials should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • Applied Materials' debt-to-equity ratio is very low at 0.28 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.44, which illustrates the ability to avoid short-term cash problems.
  • 45.62% is the gross profit margin for Applied Materials which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 8.5% trails the industry average.
  • Applied Materials, with its decline in revenue, slightly underperformed the industry average of 13.9%. Since the same quarter one year prior, revenues fell by 15.7%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • Applied Materials' earnings per share declined by 17.6% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, Applied Materials reported lower earnings of 6 cents vs. $1.45 in the prior year. This year, the market expects an improvement in earnings (59 cents vs. 6 cents).

Written by Keris Alison Lahiff.

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