Deals and IPOs

AMAT, Tokyo Electron deal a vote of confidence in Japan?

Gary Dickerson, chief executive officer of Applied Materials., right, shakes hands with Tetsuro Higashi, chairman of Tokyo Electron Ltd., during a news conference in Tokyo, Japan, on Tuesday, Sept. 24, 2013.
Junko Kimura | Bloomberg| Getty Images

A merger between Applied Materials and Tokyo Electron that will create a $29 billion chip-making gear company is a vote of confidence in Japan as the world's third-largest economy steps up its efforts to revive its fortunes, analysts say.

Applied Materials, the world's biggest maker of chip-making gear, announced on Tuesday that it would merge with its Japanese rival Tokyo Electron.

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According to data from Thomson Reuters, the deal is the second-largest foreign purchase of a Japanese firm and is worth just over $7 billion including net debt and excluding cash.

AMAT: Expect 3 point increase in market share

"It's a sign of good corporate cultural direction in Japan, where there is more emphasis on shareholder value and doing things like this (mergers)," said Anthony Scaramucci, managing partner at SkyBridge Capital.

"It's not only good for these two companies; it's good for the Nikkei and more broadly for the Japanese economy. So it is very positive," he added, talking on CNBC Asia's "Squawk Box" about whether the deal was a sign of confidence in the economic policies of Japan's Prime Minister Shinzo Abe.

Applied Materials closed 9 percent higher in New York trade on Tuesday. Investors in Tokyo also reacted positively to the deal, pushing up Tokyo Electron shares 14 percent on Wednesday.

Applied Materials is not the only one to show interest in Japan since Abe pressed ahead with fiscal and monetary stimulus earlier this year to boost Japan's economy, which has been hampered by deflation and weak economy growth.

Earlier this year, American billionaire investor Daniel Loeb called for a break-up of Japanese consumer electronics giant Sony, saying that Abe's economic policies could be a "game changer" for Japan.

(Read more: Change at Sony: Start of third leg of Abenomics?)

Optimism about Japan's economic revival has made the benchmark Nikkei the best performing major stock market in the world this year, with gains of almost 63 percent. That compares with a rise of just 13 percent in the Dow Jones Industrial Average and a 12 percent gain in European shares.

"I think Japanese equities can outperform over the next few years. Assets are relatively undervalued. More and more investors are looking at Japan and are likely to move into Japan," Marc Faber, editor and publisher of the Gloom, Boom & Doom Report, told CNBC.

The right move?

Increasing investor interest in Japan: Pro

Applied Materials and Tokyo Electron make equipment for the production of semiconductors, flat panel displays and solar panels.

Mike Splinter, executive chairman of Applied Materials, told CNBC that he was confident the merger would not face regulatory hurdles.

(Read more: AMAT confident Tokyo Electron deal will be approved)

Analysts said that although there were some risks associated with merging two companies from two different corporate cultures, the move was probably the right one.

"We do like the deal, we think it makes sense," said David Dietze, president and chief investment strategist, Point View Wealth Management, in New York.

"There will be lots of costs to be squeezed out so there are some risks. You have the conservative Japanese and the swash-buckling Americans, but I do think it is a good match," he added.

(Read more: Are Japan's stocksready to storm higher?)

Patrick Ho, an analyst at the brokerage Stifel Nicolaus, added: "[What works] in this deal's favor is that Tokyo Electron has been progressive in recent years, acquiring smaller U.S. companies."

"And the leadership team at Applied Materials is well respected in Japan and Asia. So while integration is a concern, it is something that I think can be done," Ho said.

—By CNBC.Com's Dhara Ranasinghe; Follow her on Twitter @DharaCNBC