A Non Financially driven framework for stakeholders to evaluate the impact and benefits of a proposed merger. Includes detailed scoring model and illustration of use by looking at proposed merger of Applied Materials and Tokyo Electron

1. Framework for Stakeholder Evaluation
of Technology Mergers
The proposed merger between Applied Materials
and Tokyo Electron provides a case study for
illustrating how stakeholders can review the benefits
and alternatives to technology mergers
Bill Kohnen October 2013

2. Summary
• Merger activity while stable is likely to grow in the
technology sector
• Stakeholders can the suggested format to review
the impact of a merger
• A detailed Framework, Rating System and Guidline
based on score is presented
• For illustration the recently announced proposed
merger of Applied materials (AMAT) and Tokyo
Electron (TEL) is used to demonstration application
of the framewirk.
Bill Kohnen October 2013

3. Overview
• In the first half of 2013 there the value of worldwide
merger activity was nearly a trillion dollars
• The building blocks for further growth of merger
activities remain in place
• Lots of deals are being talked about but decision
makers remain cautious
• Merger activity in the technology arena is expected
to become more active as part of the constraint
may have been traditional cyclical business
concerns.
Bill Kohnen October 2013
As activity in the technology sector eventually picks up it is useful for
stakeholders to have a framework for consideration of the benefits of a
proposed merger

4. Framework
• This is NOT a deep dive financial model that
requires a rocket science mathematical financial
understanding
• This would NOT be best used by an “agnostic”
viewer as the framework does requires some
experience (objective and subjective) within the
scope of the proposed merger
• It is not definitive and is meant to lead to further
discussion by stakeholders
Bill Kohnen October 2013
The recently proposed merger of Applied Materials and Tokyo Electron
makes for a real time case study on how the framework could be used and is
just done for illustrative purposes.

5. Framework for Stakeholder Evaluation of a Technology Merger
• Companies
• Customers
• Employees
• Local Communities
• National Interests
• Impact on Technology/Innovation
• Consumer Prices
• Industry Implications
• Alternatives to Mergers
Bill Kohnen October 2013

6. Bill Kohnen October 2013
Category 1 2 3 4 5
Companies Both companies stable and
profitable
Stable but cyclical challenges
to operations and R&D
Both companies
realtively stable but
potential growth
One company facing severe
short term financial challenge
Both companies verge of
ceasing operations
Customers Support and Service gets worse Support for some areas
degrades
Support remains same Support from one of merging
parties improves
Service and Support
dramatically improve
Employees Immediate loss of jobs both
sides
Significant loss for one side
and shifting of jobs to new
areas
No Impact as a result of
merger
Opportnities for growth for
exisitng employees
Company will add positions in
current and new locations
worldwide
Local Communities Current communities will lose
jobs immediately with big
economic impact
Immediate job loss but
mitigated by other industries
and growth
Benefit primarily to one
side with minor loss to
other communities
No impact on present
communities
Growth and benfits to present
and future sites
National Interests Immediate Loss of Critical
technology and talent
Eventual loss of National
capabilty
No impact Short term benefit primarily for
one side
Enhance National Technology
and Skills long term
Technology/Innovation Merged company will gain
proprietary control Innovations
and R&D for industry
Merged company will have
"de facto" control over
innovation
Merged company
shares with preferred
customers or through
expensive licensng
Current innovations availible to
broader range of customers
Leads to open Innovation for
current and future tecnology
Consumer Prices Direct Immediate higher prices
to consumers
Creates differentiated
premium pricing where
before there was none
Impact felt and
absorbed in supply
chain before consumer
No Impact Costs are reduced
Industry Implications Harm all but one of merging
companies
Good only for merging
companies
Limited improvement 80% of industry benefits
weaker players do not
Industry Improved "all ships
rise"
Alternatives to Mergers Continue operations as is Solve current issues via public
private consortia
Privatization if a public
company/ Alternative
funding/Joint venture
Government intervention No Alternatives
Score
Details of Rankings

7. Ranking of Scores
Bill Kohnen October 2013
Score Action
9 to 20 Merger not in Interest of Stakeholders
and not likely to go through
20 to 30 Potential but subject to Significant
Scrutiny and additional stakeholder
support needed. Time and Cost
needed by proponets of merger to
push the concept. Danger that focus
on this further erodes stakeholder
concerns in the meantime.
30 to 40 In this case a several issues drive the
benfit with others being negative or
neutral. This is the common space for
proposed merged to be in before a
vote or decision
40 to 45 Strong Case for Merger

8. Companies
• Both AMAT and TEL have been around since the 60‟s
•
• Historically both have solid revenues subject to the cyclical nature of the
industry
• They are ranked #1AMAT and #3 TEL as semiconductor equipment
suppliers
• The cyclical nature of the overall semiconductor „ecosystem‟ which
follows a 2 to 4 year boom or bust cycle.
• If they remained independent both AMAT and TEL should have no
problem, with proper management, continuing to manage their
business very successfully.
Bill Kohnen October 2013
Rank: 2

9. Customers
• Individuals at AMAT are good but their process for service
and support has always been challenging for customers
and they continue to try to charge ever more money for
support.
• TEL is generally perceived as slow to respond to urgent
requests for delivery and failure analysis and can be
selective in which customers it supports.
• From a customer standpoint it is hard to see how this
would improve support
Bill Kohnen October 2013
Rank: 1

10. Employees
• Applied and TEL have already downsized tremendously over
the years
• AMAT has outsourced many functions (it is said you can go to
a meeting in an AMAT site and there are sometimes no AMAT
employees
• TEL has also outsourced lots of functions (for instance installed
base support in SE Asia)
• Primary HQ seems to be planned in Asia
Bill Kohnen October 2013
Rank: 2

11. Local Communities
• AMAT is notoriously hard on its supply base having driven
many companies out of business over the years. Giving it
even more leverage will be very difficult on these
typically small to medium sized business organizations.
• The positions lost (even the outsourced ones) are still
generally good paying professional positions.
• Both AMAT and TEL are good corporate citizens but a
reduced footprint in a community would naturally result
in less support.
Bill Kohnen October 2013
Rank: 2

12. National Interest
• The increased leverage of the merged company could be harmful to
small and medium sized business.
• AMAT is currently a US based company and TEL Japan based. The new
company will be incorporated in the Netherlands. This will mean that the
worlds most powerful semiconductor equipment companies AMAT/TEL
and current number 2 ASML are based in the same country.
• Technology positions will be lost in the US and Japan
• Critical technology and innovations supporting important national
interests such as; national defense, medical innovation and alternate
energy are further concentrated under the control of the merged
organization
Bill Kohnen October 2013
Rank: 2

13. Consumer Prices
• Both AMAT and TEL are very opportunistic on pricing
and level of support based on market position.
• With less competition they can certainly increase
prices
• It is likely however, price increases will be absorbed
in the couple of layers in the supply chain between
production equipment and consumers
Bill Kohnen October 2013
Rank: 3

14. Industry Implications
• AMAT has not always been viewed as a fair participant in industry
organizations while TEL has a generally positive view. That being said both
AMAT and TEL have employees on the Board of Directors of industry
organizations and contribute money to thee organizations.
• In absolute terms TEL and AMAT have thousands of customers and a
current installed base approaching 100,000 systems
• As a practical matter technology development and sales are focused on
a handful of major customers such as Samsung, TSMC, Global Foundries
and Intel.
o These mega customers are used to dictating terms to AMAT and TEL and are unlikely
to want to cede any leverage to a supplier.
Bill Kohnen October 2013
Rank: 2

15. Alternatives to Merger
• Ultimately there can be benefit for companies to come
together to solve advanced technology problems and
share the cost of such efforts.
• Public/Private consortia are working very well now on
the development of 450mm wafer processing and
advanced lithography challenges
• Transparent and synergistic efforts of consortia are far
more preferable to speed innovation and retain
optimum competitiveness for all in an open market.
Bill Kohnen October 2013
Rank: 2

16. Bill Kohnen
October 2013
0
1
2
3
4
5
Stakeholder View of Proposed Merger
Total Score = 20 Suggesting that there still will be significant
stakeholder concerns to overcome

17. Conclusion
• Mergers in and of themselves are neither good or
bad
• Stakeholders generally have access to a great dal
of information available as part of public disclosure
as well as personal experience
• A non technical framework for reviewing the
benefits of technology and other mergers is useful
for stakeholders to consolidate and clarify their
views
Bill Kohnen October 2013