Applied Materials to Acquire Semitool for $364 Million

By Beacon Staff

SANTA CLARA, Calif. – Applied Materials Inc. said Tuesday it offered to buy Semitool Inc. for $364 million in cash, a move the company says will broaden its portfolio of chip manufacturing equipment.

Applied Materials CEO Mike Splinter said the acquisition will help the company tap the growing market for semiconductors that go into mobile gadgets including “smart” phones and notebook computers.

“The semiconductor industry recovery is being fueled by global demand for mobile devices such as smart phones, notebook PCs and portable media players for music, gaming and books,” Splinter said in a press release. “With this acquisition, Applied will help the world’s leading chip makers create ever-smaller and more powerful devices.”

Applied Materials, based in Santa Clara, Calif., said it will offer Semitool shareholders $11 per share, a 31 percent premium over the company’s Monday closing share price of $8.40.

Semitool Chairman Ray Thompson touted the acquisition in a conference call Tuesday morning, saying, “As part of Applied Materials, we can accelerate the global adoption of the technologies Semitool has developed and provide our employees with a strong future and our stockholders with exceptional value.”

For the deal to be approved, Applied Materials needs two thirds of Semitool shareholders to accept the offer, which the companies expect to close by the end of the year. About 32 percent of Semitool’s shares are held by its directors and executives, who have already agreed to tender their stake. Semitool will be operated as a business unit of Applied’s Silicon Systems Group.

“Applied Materials and Semitool have a strong track record of collaborating to develop equipment solutions for leading chip makers,” Randhir Thakur, senior vice president and general manager of Applied’s Silicon Systems Group, also said in the release. “Together with Semitool’s people and products, we can help the industry move to smaller form factors and faster, lower power chips.”

Semitool, based in Kalispell, Mont., saw shares jump $2.56, or 30 percent, to $10.96 in premarket trading Tuesday. The stock has ranged from $1.86 to $9.73 over the past year.

Semitool manufactures equipment and tools to make microchips, primarily by supplying electrochemical plating and wafer surface preparation equipment used by chip packaging and chip making companies around the world.

Though Semitool, like many American manufacturing firms, has endured a difficult year, the company reported increased earnings and customer orders lately. In the quarter ending Sept. 30, Semitool reported its customer bookings were up more than $70 million, a 120 percent increase from the previous quarter. Fourth quarter revenue was $47.1 million, an increase from the third quarter’s $31.8 million, but still down from the $60.1 million Semitool did in the fourth quarter of last year.

In an Oct. 6 earnings report, Semitool President and Chief Operating Officer Larry Murphy attributed the rebound in customer orders to the company’s work expanding market share in Asia, despite the recession.

Semitool recently celebrated its 30th anniversary in the Flathead Valley, after founder Ray Thompson moved the firm here from California in 1979. With 830 workers worldwide, Semitool is one of the biggest employers in northwest Montana, with 510 working out of its two Kalispell factories and a facility in Libby.

Headquartered in California’s “Silicon Valley,” Applied Materials is one of the world’s leading producers of manufacturing technology used by companies such as IBM, Sony, Toshiba and other giants to make flat panel displays for computers and TVs, semiconductor chips for electronics, and, increasingly, photovoltaic cells for solar energy technology. Employing more than 12,000, Applied recorded revenues of about $5 billion in fiscal year 2009, according to the company’s Web site.

In Tuesday’s conference call, Applied executives said the acquisition was not motivated by solar technology so much as Semitool’s inroads into the two fastest growing sectors in the semiconductor industry: advanced packaging and the memory industry’s conversion to copper.

Although Applied’s earnings surpassed Wall Street expectations with $1.53 billion for the quarter ending Oct. 25, that was down from $2.04 billion a year ago. Applied also announced plans to trim its workforce by more than 10 percent, eliminating 1,300-1,500 positions over the next 18 months.

In an interview with the Beacon, David Miller, a spokesman for Applied Materials, said that the recent layoff announcement was unrelated to the Semitool acquisition, and involved a “broader restructuring of Applied’s global business,” dealing primarily with “how markets have shifted to Asia.”

But Miller said it is too early to tell whether Applied’s purchase of Semitool could result in job cuts in the Flathead. As the deal is closed and finalized in coming months, workforce integration teams from Applied will begin meeting with Semitool employees to see how operations complement each other.

Richard Hegger, Semitool’s general counsel, said Applied Materials executives flew to Kalispell to give a presentation to all Flathead employees on the acquisition and what it would mean for them.

Both Hegger and Miller said it was too early in the purchase process to comment more specifically on the impacts it might have on the workforce.

“How things will work going forward, it’s too early to know,” Miller said. “Once the deal is closed and finalized, then we can really start looking at things in depth.”

“We’ll be talking to them (Semitool employees) through the whole process,” he added. “As decisions are made, they’ll know about it.”

Miller also believes Applied’s global reach leaves the company well prepared to do business out of a relatively remote location like northwest Montana.

“We have locations all over the world,” he said. “We can work effectively in Switzerland and Italy, so Montana’s not a stretch on that end.”

As for whether Semitool’s Montana facilities will continue to operate under that name, Miller wasn’t sure, but thinks product lines would likely continue to carry that name with Applied Materials signage added to it.

But for now, Applied and Semitool are focused on closing the deal in what Miller called an “aggressive timeline.”

“Applied has worked with the people there and been very impressed with the Semitool people and products,” Miller said. “We think they’ll provide some interesting new technology for us that we can use going forward.”

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