Applied Materials Inc. agreed to acquire Tokyo Electron Ltd. in a deal valuing the Japanese semiconductor production equipment maker at $9.3 billion, creating a giant in the chip and display manufacturing-tools sector.
The deal announced Tuesday is effectively a takeover of Tokyo Electron by Applied Materials and values the firm at a modest premium to its market value of 872.3 billion yen ($8.8 billion). Shareholders of Applied Materials, which is valued at $19.7 billion under the deal, will own 68% of the new company. Both the CEO and CFO of the new company will come from Applied Materials.
The two companies took pains to show that deal was a merger of equals, saying the new company would be incorporated in the Netherlands and each company would have an equal number of representatives on the 11-member board with the last representative being a mutually-agreed upon candidate.
“We believe the combination will accelerate our momentum for profitable growth, increase the value we deliver to shareholders and create great opportunities for our employees,” said Applied Materials Chief Executive Gary Dickerson, who will serve as CEO of the new company. Tokyo Electron CEO Tetsuo Higashi will become chairman of the new entity.
And it will save taxes, too. The U.S. and Japan have the highest statutory corporate tax rates in the developed world, and by most measures the highest effective corporate tax rates as well. In contrast, the Netherlands has a statutory corporate tax rate of 25 percent, compared to 39 percent in the U.S. and 37 percent in Japan. The Netherlands also has the most generous capital allowances for plant and machinery in the developed world, which is particularly important for these two manufacturing firms. Lastly, unlike the U.S., which taxes foreign earnings on a worldwide basis, the Netherlands uses a territorial tax system, which largely exempts foreign earnings from domestic taxation.
Taxes matter. Lots of other things matter, too, but these tax differentials are so huge that it is probably the taxes that are driving this decision.
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