Could Lam-KLA Marriage Face ‘Deal-Killing’ Objection By Intel, TSM?
Lam Research ( LRCX ) and KLA-Tencor ( KLAC ) could be forced to trim competitive segments to push through the $10.6 billion merger that threatens to swallow rival Applied Materials ( AMAT ), Semiconductors Advisers President Robert Maire said Monday. And unlike Applied Materials’ failed attempt to acquire Tokyo Electron, Lam only sees $250 million in initial savings and therefore has less wiggle room to negotiate potential antitrust remedies, Maire wrote in a research report. “Both Lam and KLA are already superbly run companies without a lot of cleaning up to be done,” he wrote. “This suggests that there is not a lot to be gained in efficiency by the combo as they are already quite profitable as separate entities.” The synergies, however, have likely prompted antitrust concerns. Last week, the U.S. Department of Justice sent a “ second request ,” asking for more information into Lam’s plan to buy KLA. Now, the duo could be forced to sign a “plea bargain,” Maire said. KLA products measure competitors’ dep and etch tools, leading to a “fox guarding the hen house” paradigm where a Lam-owned subsidiary would be charged with rating rivals’ tools. Under the DOJ consent decree, KLA could be forced to divest those businesses or license its technology. “The range (of potential remedies) is quite broad, from almost zero cost to deal-killing cost and everything in between,” Maire said. Applied Materials and Tokyo Electron eventually called off their merger in the face of stringent regulatory concerns. After the DOJ rules, the Lam-KLA deal still faces potential fights from regulators in Japan, China, Korea and the Netherlands, where a number of rivals operate. And major chip manufacturers Intel ( INTC ) and Taiwan Semiconductor Manufacturing ( TSM ) also will likely have objections, Maire says. “We would imagine that they are concerned about their suppliers gaining too much leverage against them and holding too much consolidated power,” he wrote. “Both are probably happier with the status quo.” On the stock market today , Lam and KLA stocks were each rose a fraction, trailing a 1% rise in Applied Materials stock. No. 1 chip-gear maker ASML ( ASML ) stock also rose a fraction Monday.