UPDATE 2-Applied Materials to buy Tokyo Electron, create $29 bln company
* Applied Materials shareholders to hold 68 pct of merged co
* Deal to combine two chip equipment makers
* Applied Materials shares rise 4.8 pct pre-market
Sept 24 (Reuters) - Applied Materials Inc, the world's biggest producer of chipmaking equipment, will buy rival Tokyo Electron Ltd in an all-share deal, creating a company with a combined stock market value of $29 billion, the two said on Tuesday.
The surprise move is expected to strengthen their position in a maturing industry where growth opportunities have become harder to find.
"The industry is not high-growth anymore, so you are seeing some consolidation," David Rubenstein, senior analyst at Advanced Research Japan.
"But both Applied and Tokyo Electron are the best of breed. They have the highest profit margins, they have the best balance sheets, they make money through thick and thin. So they are not desperate but they are hungry for earnings growth and this is one way they can do it."
Tokyo Electron CEO Tetsuro Higashi played down possible anti-trust issues, saying there was limited overlap in their product lineups, although Rubenstein said etching and deposition equipment were areas that might grab regulators' attention.
"It's very positive for Tokyo Electron if it goes through (but) you've got all these anti-trust issues with the deal," Rubenstein said.
U.S.-listed Applied Materials is the world's largest maker of semiconductor equipment by sales, followed by ASML Holding NV and Tokyo Electron, according to the latest data from market researcher Gartner. ASML is the dominant maker of lithography tools that etch circuitry onto chips, a segment Applied Materials and Tokyo Electron do not compete in.
However, Rubenstein said the deal would be bad news for rivals such as Lam Research Corp and Hitachi Ltd subsidiaries Hitachi High-Technologies Corp and Hitachi Kokusai Electric Inc.
Applied Materials shares rose 4.8 percent in pre-market trade.
For every existing share, Tokyo Electron shareholders will receive 3.25 shares of the as-yet unnamed new company, and Applied Materials shareholders will receive 1 share, leaving the latter with about 68 percent ownership.
The companies expect the deal to close in the middle to second half of next year.
Applied Materials CEO Gary Dickerson will be chief executive of the combined company and Tokyo Electron's Higashi will become chairman. The companies said in a joint statement they would maintain dual listings on Nasdaq and the Tokyo Stock Exchange.
They expect to achieve $250 million savings in synergies by the end of their first full fiscal year and will buy back $3 billion in the company's own shares within 12 months of the combination.
Analysts and bankers said the deal took them by surprise, although Tokyo Electron's stock price has surged 14 percent over the past week, compared with only a 2 percent rise in Tokyo's benchmark Nikkei average. Applied Materials' shares have risen 0.5 percent over the same period.
Goldman, Sachs and Co acted as Applied Materials' financial adviser on the deal while Tokyo Electron was advised by Mitsubishi UFJ Morgan Stanley Securities Co.