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Applied Materials to Buy Kokusai From KKR for $2.2 Billion

Kokusai Electric will operate as a business unit of Applied’s Semiconductor Products Group.

Applied Materials Inc., one of the largest makers of machines used to make semiconductors, is to buy Kokusai Electric from KKR & Co. in a deal worth about 250 billion yen ($2.2 billion).

Kokusai Electric will operate as a business unit of Applied’s Semiconductor Products Group and continue to be based in Tokyo, according to a statement Monday.

The deal is expected to close within 12 months, and Applied Materials is to finance the transaction using a combination of balance sheet cash and a term loan facility, the statement added.

Applied Material shares were up 3.2% in pre-market trading in New York Monday.

California-based Applied Materials dominates the market for equipment involved in the early stages of turning wafers of silicon into computer chips. Its main customers are Samsung Electronics Co., Intel Corp. and Taiwan Semiconductor Manufacturing Co. Applied Materials, based in Santa Clara, California, went on a sales growth spurt under Chief Executive Officer Gary Dickerson as chipmakers ordered more machinery to help solve the increasing complexity of making semiconductors.

Investment firm KKR bought the Japanese mobile phone and wireless equipment manufacturer, a former Hitachi Ltd. unit, in a tender offer in 2017. Before the deal closed, KKR made a bid that valued Kokusai Electric at $3 billion yen, although it’s not clear how much KKR ultimately paid.

Kokusai focuses on batch processing, or processing many wafers in parallel, particularly for memory wafers. Its key customers include Samsung Electronics Co., Taiwan Semiconductor Manufacturing Co., and Intel Corp., according to a presentation.

The deal will expand Applied’s Asia footprint, Dickerson said on the investor call, adding that Kokusai currently has an install base of 10,000 systems. Kokusai’s revenue for 2019 is estimated at $1.5 billion based on international accounting standards.

The $470 billion chip-making industry has been consolidating rapidly over the past half-decade, putting pressure on suppliers like Applied Materials to bulk up in turn.

Applied Materials sought to merge with Tokyo Electron in 2015, but the deal was scrapped amid opposition from the U.S. Department of Justice. Dickerson had planned to move to Japan to run the combined company.

The proposed deal by Applied Materials to buy Kokusai Electric is also likely to face scrutiny from regulators. The transaction will need approval from six regulators including those in China, Applied Materials said on the conference call, but will not need U.S. approval from the Department of Justice.

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