Applied Materials Inc, a U.S. chip gear maker, betting on boosting demand for memory chips used in 5G phones, AI-powered devices and data centers came on an agreement on Monday with KKR & CO to buy Kokusai Electric for $2.2 billion.
Makers in the memory chip market are flooding with excess number of memory chips as demand from smartphone makers dropped in past few quarters which not only affected the sales of chipmaking equipment but also caused the chip makers to cut the prices, and the current acquisition deal also came against the backdrop of that glut.
Applied Material said that for buying Kokusai there is not any requirement of get is approved from the U.S. Justice Department like the company’s 2015 deal to acquire Japan’s Tokyo Electron Ltd for $10 billion, which remained failed to get approval of the federal department rather forced to be scraped.
However there is still the possibility of Chinese authorities to be scrutinizing the deal because of the elevating trade war between China and the United States. Chinese authorities last year came on upsetting Qualcomm Inc’s deal to buy NXP Semiconductors for $44 billion.
Given the small size of Kokusai’s acquisition the approval process seemed to be easy but from political point of view, China’s willingness always bears a question mark, Evercore analysts said.
After the collapse of their previous major round of talks in May, the world’s two largest economies on Saturday came to an agreement of restarting their trade negotiations.
The Kokusai acquisition, apart from China, will also required to get approvals from Japan, Taiwan, Ireland, Korea and Israel, said Dan Durn, Chief Financial Officer of Applied Material, on a call with analysts.
The deal is expected to be completed in a time span of one year.
For the deal, Cleary Gottlieb Steen & Hamilton LLP and Hogan Lovells were the legal counsel for Applied Materials.