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Business deals

Applied Materials walks away from $3.5bn Kokusai Electric deal

Chinese regulator slow-walked approval of purchase by US chipmaking device leader

Applied Materials first agreed to purchase Kokusai Electric from KKR in July 2019.   © Reuters

TOKYO/NEW YORK -- Top U.S. chipmaking equipment supplier Applied Materials said Monday it has abandoned a $3.5 billion deal to acquire Japanese peer Kokusai Electric from investment firm KKR owing to regulatory hurdles.

California-based Applied Materials "did not receive confirmation of timely approval from the regulator in China," according to a statement.

The announcement comes after Chinese antitrust authorities dragged their feet on issuing approval for nearly nine months, even after regulators in Japan, the U.S. and Europe had given the deal the green light. The deadline to close the purchase had been extended three times due to delays.

Hirofumi Hirano, CEO of KKR Japan, told Nikkei the private equity firm would seek to list Kokusai Electric on its own. Kokusai Electric was spun off from the Hitachi group.

With the U.S. taking steps to restrict Chinese access to American chipmaking tools, officials in Beijing may have worried about the consequences of a U.S. company acquiring Kokusai Electric, industry watchers said.

The Japan Fair Trade Commission ruled that the acquisition would have "no substantive effect" on competition in the industry, in part because Applied Materials and Kokusai Electric have different areas of specialty.

To walk away from the deal, Applied Materials will pay a $154 million termination fee to KKR.

"While we are disappointed that the transaction will not be completed, Applied Materials' future outlook has never been better," company CEO Gary Dickerson said in a statement. "Our innovations are accelerating our customers' roadmaps and we have outstanding opportunities to extend our technology leadership, drive profitable growth and deliver attractive cash returns to shareholders."

Shares in Nasdaq-listed Applied Materials fell about 2.3% Monday.

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