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Business deals

Exclusive: Applied Materials to buy KKR's Kokusai Electric for $2.2bn

World's top chipmaking machine supplier moves to cement lead with Japanese deal

KKR tried to find a buyer for Kokusai Electric, but the recent market downturn has dampened interest in the semiconductor equipment maker. (Photo source by Reuters)

TOKYO -- Applied Materials, the world's top supplier of chipmaking equipment, will buy smaller Japanese peer Kokusai Electric, Nikkei has learned.

The U.S. company will purchase the former Hitachi group member from American private equity group KKR by the end of the year, according to sources familiar with the negotiations.

Applied Materials announced the deal later on Monday, saying it will acquire all outstanding shares of Kokusai Electric for $2.2 billion in cash.

The acquisition will expand Applied Materials' product lineup at a time when the semiconductor industry is racing to develop more advanced chips for applications including 5G networks and artificial intelligence.

As a supplier, having multiple types of equipment makes it easier to develop new devices and build up know-how.

The deal is expected to face close scrutiny from regulators. U.S. authorities in 2013 raised competition concerns over a planned merger between Applied Materials and top Japanese semiconductor equipment supplier Tokyo Electron, and the U.S. company later withdrew its proposal.

While the difference in size between Applied Materials and Kokusai Electric makes that less likely this time, an industry executive said Chinese regulators may withhold approval for the acquisition amid the ongoing U.S.-China trade war.

Beijing has been building up the country's semiconductor industry as part of its Made in China 2025 initiative. Worries that vital technology may leak to China appear to have played into Applied Materials' decision to buy Kokusai Electric.

The U.S. company's market share is expected to rise to more than 20% from 18% after the acquisition, based on data from research firm Gartner.

Kokusai Electric has strength in equipment used in film deposition, a process for adding thin layers of film on silicon wafers to form circuits.

The company was originally part of telecommunication equipment maker Hitachi Kokusai Electric, a Hitachi unit acquired by KKR in 2017. The following year the semiconductor equipment division was spun off to become Kokusai Electric.

KKR has had difficulty finding a buyer for Kokusai Electric amid the recent downturn in the semiconductor industry. Japanese players showed interest but were deterred by a potentially high purchase price and the prospect of a review by competition authorities.

According to SEMI, a global industry body, the market for semiconductor pre-processing equipment is expected to strengthen after this year, hitting about $58.4 billion in 2020.

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