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Business deals

China hurdle threatens Applied Materials' bid for Kokusai Electric

No green light from regulators by Friday would mean a $154m termination fee for KKR

NEW YORK -- Applied Materials' $3.5 billion acquisition of Kokusai Electric from investment firm KKR has failed to receive approval from Chinese regulators, jeopardizing the deal as its final deadline nears, the major U.S. chipmaking equipment supplier warned Monday.

The purchase agreement "may have terminated in accordance with its terms on March 19, 2021 after the parties were unable to confirm timely regulatory approval in China," Applied said.

"If Applied does not receive confirmation of timely approval prior to the March 26, 2021 deadline for payment of the termination fee, Applied will treat the agreement as terminated and pay KKR a termination fee of $154 million in cash," the news release said.

The announcement came less than three months after Applied raised its bid from the original $2.2 billion amid a global semiconductor crunch that drove up share prices in the sector.

Tokyo-based Kokusai, formerly part of the Hitachi group, is known for making equipment used in film deposition, a process for adding thin layers of film onto silicon wafers to form circuits.

China is the only remaining government from which the deal awaits approval. Applied previously got the green light from Taiwan in the second quarter of fiscal 2020 and from Japan and South Korea the quarter before that, following approvals by Ireland and Israel in 2019.

After years of Sino-American tensions in trade and technology, Beijing has launched its own effort to tighten export rules, sometimes borrowing a leaf from the former Trump administration's book to target some of America's largest tech players. China has also reportedly banned Tesla's camera-studded electric vehicles from military facilities over security concerns -- shades of earlier U.S. treatment of the TikTok short-video app.

As the two countries' top diplomats met last week in Anchorage, Alaska, the Chinese side likely pushed for a rollback of U.S. sanctions against the likes of Huawei Technologies and Semiconductor Manufacturing International Corp., according to observers. Washington has so far stood its ground.

Also on Monday, Applied announced the authorization of a $7.5 billion stock buyback. Its shares were up well over 5% in the early afternoon and closed the trading day up 3.89% at $119.33.

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