Applied Materials-Tokyo Electron merger scrapped

U.S. manufacturer Applied Materials (AMAT) and Tokyo Electron Monday announced cancellation of their merger plan to create created a semiconductor giant with a market value of approximately $29 billion.

Santa Clara, Cal.-based Applied Materials said the decision came after U.S. Department of Justice officials said the remedy the companies proposed to replace competition that could be lost from the merger was not enough to overcome federal anti-trust concerns.

Although both companies disagreed, "Applied and Tokyo Electron determined together that there is no realistic prospect for completion of the merger," Applied President and CEO Gary Dickerson told financial analysts in a conference call after the announcement.

The government objections, delivered Friday afternoon, focused on overlap between the companies' current and pipeline projects, as well as general effects the merger could have on future innovations in equipment used to manufacture advanced semiconductors, said Dickerson.

No termination fees will be payable by either party, the companies said.

The turnabout sent Applied Materials shares plunging down 8.39% to a $19.97 close in Monday trading.

The decision to scrap the merger "preserves competition for semiconductor manufacturing equipment," said Acting Assistant Attorney General Renata Hesse of DoJ's antitrust division.

"The semiconductor industry is critically important to the American economy, and the proposed remedy would not have replaced the competition eliminated by the merger, particularly with respect to the development of equipment for next-generation semiconductors," said Hesse.

Dickerson and other company's officials said the firm's existing growth strategy remains compelling despite the change of plans.

Applied Materials has been gaining market share in the semiconductor and display equipment markets, "while making meaningful advances in areas that represent the biggest and best growth opportunities for us," said Dickerson.

The companies had announced their agreement to combine in September 2013. The transaction would create a "global innovator in semiconductor and display manufacturing technology," they said at the time.

Applied Materials had intended to exchange about $9.3 billion of its shares for Tokyo Electron. The Japan-based firm said the share exchange would also be canceled.

The transaction had represented one in a recent series of corporate tax inversions, a procedure in which a U.S. firm reincorporates its headquarters overseas in a move expected to cut its future U.S. tax bills. The Department of the Treasury in September announced new regulations that make corporate inversions harder to achieve.

As it scuttled the merger plan, Applied Materials announced a new share buy-back program that authorized up to $3 billion in repurchases of the company's stock over the next three years. The program will start in the third quarter of Applied Materials' 2015 fiscal year, the company said.

"This program reflects our confidence in our performance and opportunities as well as our strong commitment to shareholder returns," Dickerson said in a statement announcing the buy-back.