Lam Research will issue $3.9 billion of new debt for use in $5 billion acquisition of KLA-Tencor

By Lisa Kerner

Charlotte, N.C., Oct. 21 – Lam Research Corp. said it will use a combination of cash and debt to fund the cash portion of its $5 billion acquisition of KLA-Tencor Corp. and to repay KLA’s outstanding term loan.

“To finance the purchase, Lam will issue approximately 80 million new shares and approximately $3.9 billion of new debt,” said executive vice president and chief financial officer Doug Bettinger.

The 80 million shares of Lam are valued at about $5.6 billion as of Tuesday.

Lam has obtained a commitment for $4.2 billion of bridge financing for the transaction from Goldman Sachs Bank USA and Goldman Sachs Lending Partners LLC.

The company intends to provide a direct, unconditional guarantee of KLA-Tencor’s senior notes upon the transaction’s closing, according to a news release.

Bettinger said Lam is committed to maintaining an investment grade credit rating.

When asked about a dividend policy and debt repayment going forward, Bettinger said Lam will continue its current dividend level.

“The main priority, at least in the near term, first and foremost is going to be the profitable investment in the business,” said Bettinger. “Second, it’s going to be deleverage the balance sheet, and then third is going to be return to equity holders.”

Bettinger said Lam expects to begin deleveraging soon after closing with an objective of getting below 2.5 times gross debt to EBITDA “as soon as possible.” He anticipates Lam will reach its leverage target in 12 to 18 months and that “it should happen in 2017.

The transaction is slated to close in mid-2016.

Transaction details

Under the terms of the definitive agreement, Lam will acquire KLA-Tencor for about $5 billion in cash and stock.

KLA-Tencor stockholders will be entitled to elect to receive for the shares of KLA-Tencor stock they hold the economic equivalent of $32 in cash and 0.5 of a share of Lam Research common stock, in all-cash, all-stock, or mixed consideration, subject to proration, the release stated.

The transaction values KLA-Tencor at approximately $67.02 per share, or $10.6 billion in equity value based on the closing stock price of Lam on Tuesday.

Executives said there is a break-up fee of “about $300 million.”

Lam president and chief executive officer said cash synergies of $250 million are expected within 18 to 24 months of the transaction’s close, while $600 million of revenue synergies are anticipated by 2020.

The combined company will have about $8.7 billion in pro forma annual revenue.

Goldman Sachs is acting as exclusive financial adviser to Lam Research. Qatalyst Partners is acting as financial adviser to KLA-Tencor.

Lam Research is a Fremont, Calif.-based semiconductor manufacturing equipment company.

KLA-Tencor, based in Milpitas, Calif., is a supplier of process control and yield management services for the semiconductor and related nanoelectronics industries.

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