Needham & Company Sees Lam Research (LRCX), KLA-Tencor (KLAC) Closing Deal in H117 Amid Regulatory Risks
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Needham & Company affirms Lam Research (Nasdaq: LRCX) with a Buy rating and $105 price target amid news of a delay to its merger with KLA-Tencor this morning.
Analyst Y. Edwin Mok commented today,
Before market open, LRCX and KLAC issued a press release effectively pushing out the timeline of achieving regulatory clearance for its acquisition of KLAC [Hold]. This is the third time the target date has been delayed, extending the regulatory approval timeframe to over a year. Given no product overlap and a combined share still similar to AMAT [Buy], we continue to believe in the merits of the transaction. However, while the companies might have addressed the concerns over anti-competitive moves after the LRCX/KLAC combination, we have no visibility into the thinking of the regulators. Overall, we see increased risks around regulatory approval given the extended delay, but believe the companies should be able to address concerns and eventually close the deal, potentially in CY1H17.
LRCX and KLAC announced today that it is likely the deal may not obtain regulatory clearance from one or more authorities before October 20, 2016, the outside date outlined in the merger agreement. This comes after the announcement of the DoJ's 2nd request in May. On the F4Q16 (Jun) earnings call on July 27th, LRCX highlighted a deal completion target by mid-Oct or later, suggesting that there was an additional change in the regulatory process. We believe both mgmt teams are pushing hard in cooperating with the DoJ and authorities in Korea, Japan, and China, citing discussion of "potential remedies". However, we nonetheless see increased risk that the deal may not come to fruition if necessary approvals continue to drag on. If the deal fails to consummate, LRCX will have to pay a termination fee of $290 million to KLAC.
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