Applied Materials To Focus On Share Buybacks After Kokusai Deal Falls Through

Semiconductor equipment maker Applied Materials (AMAT) on Monday terminated its planned acquisition of Japanese peer Kokusai Electric from global investment firm KKR. AMAT stock fell on Monday.


Santa Clara, Calif.-based Applied Materials had announced its intent to buy Kokusai for $2.2 billion in cash in July 2019. The purchase price later rose to $3.5 billion after Applied Materials negotiated a deadline extension. But the parties ultimately were unable to secure approval for the transaction from Chinese regulators. Applied Materials has agreed to pay KKR a deal termination fee of $154 million in cash.

“While we are disappointed that the transaction will not be completed, Applied Materials’ future outlook has never been better,” Applied Materials Chief Executive Gary Dickerson said in a news release.

He added, “Our innovations are accelerating our customers’ road maps and we have outstanding opportunities to extend our technology leadership, drive profitable growth and deliver attractive cash returns to shareholders.”

AMAT Stock Backs Off Record High

In afternoon trading on the stock market today, AMAT stock dropped 3.6%, near 124. On Friday, AMAT stock notched a record high of 128.98.

Semiconductor equipment stocks had surged recently on chipmakers’ heightened capital equipment spending plans. On March 23, Intel (INTC) announced plans to spend $20 billion on two new chip fabrication plants in Arizona.

Last week, Applied Materials said its board had approved a new $7.5 billion stock buyback authorization. That authorization supplements the previous authorization, which has about $1.3 billion remaining.

Wall Street analysts reacted favorably to the company’s capital allocation plan.

Evercore ISI analyst C.J. Muse expects Applied Materials to be more aggressive with its buyback plans now that the Kokusai deal is kaput.

“We think Applied will reduce its share count by about 7% (in 2021) to 857 million vs. 925 million today,” he said in a March 19 report. Muse rates AMAT stock as outperform with a price target of 140.

Next Potential Catalyst: Investor Day

AMAT stock is tied for first place in IBD’s Electronics-Semiconductor Equipment industry group, according to IBD Stock Checkup. It shares a best-possible IBD Composite Rating of 99 with four other stocks in the group. IBD’s Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.

AMAT stock is on IBD’s Big Cap 20 stock list.

The next catalyst for AMAT stock could be the company’s April 6 investor day. At the event, Applied Materials plans to discuss its “longer-term market outlook, opportunities, strategies, product and technology road maps, and financial targets.”

Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.


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