The Justice Department closed its investigation into

KLA-Tencor's

(KLAC) - Get Report

proposed acquisition of

August Technology

( AUGT), KLA-Tencor said Wednesday morning, indicating that a buyout would pass antitrust challenges.

The ruling is a blow to August, which has repeatedly said it's not for sale and that a deal with KLA-Tencor would not withstand regulatory challenges.

August and

Rudolph Technologies

(RTEC) - Get Report

agreed to merge in a stock swap two weeks ago in a below-market takeout price of $10.50 a share.

August shareholders, however, viewed the announcement as a vindication of their stock's value, bidding shares up 5% to $12.59. Rudolph shares held steady at $14.85 and KLA-Tencor shares slid 0.6% to $47.55.

KLA-Tencor said the Justice Department has notified it and August of its decision to close the investigation into KLA-Tencor's $11.50-a-share cash bid for August. KLA-Tencor said it would be likely that the Justice Department wouldn't request more information if an actual deal were reached and that a deal would be allowed to proceed.

KLA-Tencor CEO Ken Schroeder in turn sent an open letter to August CEO Jeff O'Dell repeating a commitment to speaking with the board. "We remain willing to enter into a confidentiality agreement with August that would not restrict KLA-Tencor's ability to make superior proposals to your shareholders," Schroeder wrote.

On Tuesday, Rudolph and August received antitrust approval for their own combination, but the biggest stumbling block in the completion of that deal is the takeout price, which has been underwater since KLA-Tencor stepped into the bidding war back in February.

August has been up for grabs since before announcing a merger in January with

Nanometrics

(NANO) - Get Report

. That deal was underwater from the very start, however, and it was eventually

scuttled in favor of a deal with Rudolph. August ended up paying out almost $11 million in expenses and termination fees in order to get out of the Nanometrics deal.

KLA-Tencor CFO John Kispert said last week in an

interview with

TheStreet.com

that he wasn't concerned about the antitrust concerns. San Jose, Calif.-based KLA-Tencor is the world's seventh-largest maker of chip-manufacturing equipment and the largest maker of process control tools, which inspect wafers for defects. August and Rudolph rank also make process control tools, but are significantly smaller than KLA-Tencor.

Beyond the antitrust concerns of a KLA-Tencor deal, August has

maintained that its deal with Rudolph, as with Nanometrics, would be better for customers. August also has stated that shareholders will benefit in the long term by the deals, even if the current market price exceeds the stock-swap ratios.

With the antitrust issues now taken off the table, August executives are in a tougher spot explaining to shareholders why they want to accept a bid that's been below market for six months.