The Failed Merger: Boon Or Blessing For Applied Materials, Inc. (NASDAQ:AMAT)

The merger talks between Applied Materials, Inc. (NASDAQ:AMAT) and Tokyo Electron Ltd. were abandoned last week after it became evident that antitrust concerns cannot be solved. The prevailing differences within the U.S. Justice Department resulted in a failed merger. However, if the matter is analyzed on broad parameters,

The impact

It is seen as a win for standalone Applied Materials. The demand from chipmakers is surging, which indicates the company will be better placed to concentrate on its core business. There would be no concerns associated with merger, and no added costs. At the same time, Tokyo Electron would be forced to deal with rising R&D costs and can even lose its market share to former suitor.

The details

Applied Materials, Inc. (NASDAQ:AMAT) called off the merger talks as there was no hope for getting the deal materialized due to existing antitrust issues. It was not the outcome the company expected after involved in more than eighteen months of deal negotiations. The merger plans were announced in September 2013 when the slowdown in semiconductor segment and higher cost of chips forced the companies to look for alliances in the stressed industry. However, now the conditions have changed as the Chip-equipment capital spending jumped 16.4% last year from 11.6% in 2013. The spending is expected to jump by 5.6% in 2015.

The expert view

Weston Twigg, an analyst at KeyBanc Capital Markets, said that the firm has high confidence in standalone Applied Materials model. There are numerous opportunities for the company including share buybacks, focus on margin, market expansion, and cash generation. Moreover, they have a top-tier management team to boost the growth plans. The need is to reduce cost and liquidate its solar business to support its bottom line in the coming period. The operating margin of solar business came at just 5.4% compared to the total operating margin growth of 17% in fiscal ended October 2014.

Brown Terrel

Brown Terrel

Terrel is US Markets Daily's business news reporter. She joined US Markets Daily after five years as a print reporter.