Cramer: Applied Materials, Tokyo Electron deal won't happen

The proposed merger between Applied Materials and rival chipmaker Tokyo Electron will not be allowed by U.S. regulators, CNBC's Jim Cramer said.

The two companies said they will merge in an all-stock deal, creating a $29 billion company, in what is considered a merger of equals. Although Tokyo Electron is considered by many to be one of the "most Westernized" of Japanese companies, a cross-border merger remains difficult to execute, even if it gets approval.

(Read more: Applied Materials, Tokyo Electron to merge)

"It's all about antitrust. This deal will not go through. It will absolutely not go through," Cramer said on "Squawk on the Street," listing a number of product overlaps between the two companies.

"This deal will be stopped. It is a [Applied Materials CEO] Gary Dickerson fantasy," Cramer said. "My charitable trust owns this stock. I've got to tell you, this deal will not get done."

Cramer said competitors like Intel, Samsung, Qualcomm, ARM Holdings and NVIDIA, will fight the deal in Washington because it has the potential to crunch their gross margins by bringing up costs. He also pointed out that Washington has been relatively unfriendly to larger mergers this year, challenging the US Airways-American Airlines deal this summer.

(Related: Cramer makes "buy" call on this automaker)

If the Applied Materials deal goes through, Cramer said, consumers will be hit with rising prices on products like big screen TVs, which regulators will want to avoid. However, if the deal is allowed to go through, it will be good news for Applied Materials shareholders, and Cramer said it will bring the stock price to $20, a nearly 15 percent premium from current levels.

"It would be a great deal for shareholders if it goes through, because they can raise prices," he said. "I think we have to watch this deal."

Disclosure: Jim Cramer's charitable trust owns shares of Applied Materials.

— By CNBC's Paul Toscano. Follow him on Twitter @ToscanoPaul and get the latest stories from "Squawk on the Street"