It is so much more than a milestone foreign takeover in Japan. It is a rare forward-looking deal that is located in a country where selling to a rival from overseas is the last resort. In this case, that rival from overseas is based in the United States. Applied Materials has acquired Tokyo Electron Ltd. for $10 billion.
Applied Materials, which is U.S. based, is known as the world’s biggest manufacturer of chip making equipment. Third-ranked Tokyo Electron formally announced the all-stock transaction late Tuesday. After its completion, the deal would end up being the largest foreign takeover of a Japanese manufacturer in history. While the board members appear to be split evenly on the issue, Applied Materials will own 68 percent of the Japanese company, which will give them strong control.
Experts have indicated it was a surprise move because Tokyo Electron has a strong financial balance sheet and does not need a deal in order to survive. Therefore, this particular deal stands out from the rest because it doesn’t involve a struggling target, like Citigroup Inc.’s $16 billion acquisition of broker Nikko Cordial during 2007-08 or Renault SA’s investment of $5 billion into Nissan Motor Company back in 1999.
Japanese companies spent $83 billion, which is a record, on acquiring overseas companies during 2012. During that same time period, inbound deals for the country just totaled $15 billion.
Many international companies have avoided major investments in Japan because of the general perception that the country is not open to foreign capital as well as thoughts that they could not cut expenses. In a development made last year that seemed to confirm those fears, a state-backed fund appeared to lead the bailout of Renesas Electronics Corp, a struggling chipmaker. That bailout beat out the rival bid, which was from KKR & Co., a U.S. based private equity firm.
Many believe the Tokyo Electron deal will provide the spark needed to get foreign investment booming. Prime Minister Shinzo Abe has made inviting foreign investment part of his strategy to rejuvenate the third-largest economy in the world. Investment bankers around Tokyo have indicated the current deal may be what was needed to get the investment rush underway.