Acquisition in Semiconductor Equipment Sector (LRCX, NVLS, INTC, TXN)

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Semiconductor equipment maker Lam Research Corp. (NASDAQ: LRCX) will acquire competitor Novellus Systems Inc. (NASDAQ: NVLS) in an all-stock deal worth an estimated $3.3 billion. Novellus shareholders will receive 1.125 shares of Lam Research stock for each share of Novellus stock they own. That represents a premium of about 28% over last night’s closing price for Novellus stock.

The companies are complementary, each specializing in a different bit of the chip equipment making business. Some chip makers, notably Intel Corp. (NASDAQ: INTC) and Texas Instruments Inc. (NYSE: TXN) have lowered guidance for 2012, and sales estimates for the chip industry are nearly -20% lower next year. A single company offering a wider range of equipment has a better chance of surviving than do two smaller, more specialized firms.

Lam has also said that it will begin buying back up to $1.6 billion in stock following the close of the transaction, which is expected to happen in the second quarter of 2012. Lam expects the buyback program to be completed within 12 months.

The cleverly structured deal is tax-free to shareholders and the buyback program means that Lam is paying about 48% of the acquisition price in cash. When the deal closes, Lam shareholders will own about 59% of the new company and Novellus shareholders will own about 41%. The surviving company will retain the Lam name.