Lam Research Buys novellus Systems to Consolidate Industry. What are the motives

Question

Lam Research Buys novellus Systems to Consolidate Industry. What are the motives for the deal? Discuss the logic underlying each motive you identify. How are Lam and Novellus similar and how are they different? In what way will their similarities and differences help or hurt the long-term success of the merger? Speculate as to why Lam announced a $1.6 billion share repurchase program at the same time it announced the deal? Do you believe this transaction would help or hurt competition among semiconductor-equipment manufacturers?

Explanation / Answer

The motives of the deal are to access new market of the industry and to boost the revenue of the LR. The LR is the largest manufacturer in the semiconductor equipment industry and after the deal it would be able to gear it revenue by 48% and also get Intel as a new customer. The deal will improve the product diversity of the LR and it also improves the risk profile of the LR. The EPS of the merge entity will increase by almost 20%, and provide a chance to LR to improve its gross margin at the cost of increase in R&D expense. The deal will result into the consolidation of industry and around 60% of capital spending in semiconductor industry will be among only 5 major players.

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