Lam Research Gives Up on KLA Purchase Amid U.S. Opposition

  • Transaction is latest to fail to pass regulatory scrutiny
  • Chip equipment industry sales concentrated in top five

Lam Research Corp. said it’s terminating a $10.6 billion bid to acquire fellow chip-equipment maker KLA-Tencor Corp. after U.S. regulators said the merger would harm competition.

“After careful review of recent antitrust agency feedback and evaluation of their options, both companies have decided it is not in the best interests of their respective stakeholders to continue pursue the merger,” Fremont, California-based Lam said Wednesday in a statement.

The two companies announced in August that they wouldn’t be able to meet their planned October closing date for the transaction after facing regulatory hurdles amid discussions with the U.S. Department of Justice and competition-related authorities in China, Korea and Japan. It’s the latest chip-equipment industry deal to founder on opposition from government agencies. Applied Materials Inc. was forced last year to withdraw its bid for Tokyo Electron Ltd. after objections from the Justice Department.

Equipment makers have argued they need to combine as the increasing technical difficultly of producing the components for phones and computers forces them to spend more on research and development. That argument hasn’t found favor with government agencies concerned that shrinking competition will inflate prices.

Competition Concern

Lam’s machines perform functions in the initial stages of making semiconductors, while KLA equipment monitors that steps in manufacturing are completed properly. Their largest customers include South Korea’s Samsung Electronics Co. and the U.S.’s Intel Corp.

The Justice Department said it was concerned the combination would give Lam the option to slow its competitors’ ability to make their products work with equipment made by KLA.

“Innovation in the semiconductor industry is critically important to the American economy, and the proposed transaction presented concerns about the ability of the merged firm to foreclose competitors’ development of leading edge fabrication tools and process technology on a timely basis,” said Acting Assistant Attorney General Renata Hesse of the Justice Department’s Antitrust Division.

Shares of Milpitas, California-based KLA-Tencor fell as much as 5.8 percent in extended trading following the announcement. Lam stock slid 2.6 percent.

While makers of semiconductors have merged at a record pace over the last two years, they still outnumber their even more highly concentrated equipment suppliers. Last year, the top five suppliers of manufacturing machinery accounted for 70 percent of industrywide sales. Lam was the third-largest and KLA held the No. 5 spot, according to data compiled by Bloomberg.

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