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Lam Research, KLA-Tenor Cancel Merger on Antitrust Worries

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Semiconductor equipment maker Lam Research (LRCX - Free Report) , on Wednesday, terminated its proposed acquisition of California-based KLA-Tencor (KLAC - Free Report) , following antitrust objections from the Justice Department.

The Justice Department’s antitrust division said cited serious concerns overthe deal because the combined company might restrict competition. The deal would further reduce the number of suppliers in the semiconductor industry, leading to higher prices and hurting innovation.

However, merger-termination fees will not be paid by either of the company.

The deal was announced last October, when KLA-Tencor had agreed to be acquired by Lam in a cash and stock deal worth $10.6 billion. This August, the companies said they were still in talks with the Justice Department and a regulatory clearance for the deal may not be obtained.

Had the deal turned out successful, the companies would have realized $250 million in annual ongoing pre-tax cost synergies within 1.5–2 years and $600 million by 2020.The merger would create an equipment powerhouse with a huge range of products, customer breadth and scale.

The deal cancellation caught the market by surprise and reflected in the share prices of both the companies. Share price of Lam Research and KLA-Tencor fell 1.22% and 3.67%, respectively, in the after-hours trading.

Notably, KLA-Tencor, the leading manufacturer of process control equipment, has announced its decision to hike quarterly dividend by 2 cents to 54 cents per share. This translates into a 4% increase from the prior dividend of 52 cents. This strength of KLA’s business model is reflected in its strong cash generation capabilities and commitment to return value to its shareholders.



Zacks Rank

Currently, KLA-Tencor carries a Zacks Rank #1 (Strong Buy) and Lam Research carries a Zacks Rank #2 (Buy). Stocks worth considering in the industry include Applied Materials, Inc. (AMAT - Free Report) and LinkedIn Corporation , carrying a Zacks Rank #1 each. You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Materials, Inc. witnessed a 1.11% gain in its last day’s stock price. On average, the company delivered a positive earnings surprise 5.05% in the trailing four quarters.

LinkedIn delivered a positive earnings surprise of 115.2%, on average, in the trailing four quarters.

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