The New Going Dutch: Why a U.S.-Japan merger is relocating to the Netherlands. Tokyo Electron takeover could be a mold-breaker for Japan. Applied Materials CEO Moving Family to Tokyo in Big Deal

September 25, 2013, 7:15 p.m. ET

The New Going Dutch

Why a U.S.-Japan merger is relocating to the Netherlands.

The $29 billion merger that America’s Applied Materials AMAT +2.26% and Japan’sTokyo Electron 8035.TO -2.19% announced on Tuesday is a rare trans-Pacific marriage in which a U.S. firm seems to be the dominant player. As eye-catching, the companies say that their merged entity will be incorporated not in Japan or in North America—but in the tax-friendly Netherlands. Among OECD countries, the U.S. ranks at the bottom with a combined statutory federal and state corporate income tax rate of 39.1%, and Japan is next on the dishonor roll at 37%. America is also, er, exceptional for taxing overseas profits, which dissuades companies from bringing back and reinvesting this capital at home.A 25% corporate tax rate puts the Netherlands in the middle of the OECD pack, but there are other advantages to going Dutch. Dividends, capital gains and up to 80% of royalty payments are exempt from corporate taxes. Applied Materials and Tokyo Electron say that as a combined company in the Netherlands they expect to pay an effective tax rate of 17% by 2017, compared with the 27% that Applied Materials pays today.

Holland’s success has drawn political resentment from the world’s higher taxers. That includes President Obama, who has lumped the Netherlands among “small, low-tax countries,” which is his highest insult other than perhaps “rich.” For the past five years the President has also rebuked American companies for daring to leave their profits overseas rather than hand over almost 40 cents on the dollar to Uncle Sam and state governments.

The tax harmonizers at the OECD in July put forward a plan to go after these supposed scofflaws. But the Netherlands is no Bahamas or Monte Carlo. It is a highly industrialized trading country that understands it needs a reasonable tax code to maintain its competitive edge in the global economy. Americans shouldn’t blame the Dutch if the politicians they keep sending to Washington are too thick or revenue-greedy to figure that out.

The Japanese at least are slowly catching on. Three years ago, Tokyo dropped the American-style grab for corporate profits anywhere in the world and went to a territorial taxation system. The change has had no apparent impact on tax revenue, which has since actually risen, albeit partly as a result of economic recovery. Japan cut its statutory corporate tax rate in 2012 from 39.5%, at the time the highest in the world, and Prime Minister Shinzo Abe wants to push it down further.

Alas, there’s little sign the U.S. is about to follow the Japanese, much less the Dutch, down a path toward tax sanity.

Tokyo Electron takeover could be a mold-breaker for Japan

6:40am EDT

By Nathan Layne

TOKYO (Reuters) – Applied Materials Inc’s $10 billion acquisition of Tokyo Electron Ltd is more than just a milestone foreign takeover in Japan – it’s a rare forward-looking deal in a country where selling to an overseas rival is usually a last resort.

U.S.-based Applied Materials, the world’s largest maker of chipmaking equipment, and third-ranked Tokyo Electron announced the all-stock deal late on Tuesday. On completion, it would be the biggest foreign takeover of a Japanese manufacturer. While board representation is to be split evenly, Applied Materials shareholders will own 68 percent of the new company, keeping them firmly in control.

Analysts were surprised by the move in part because Tokyo Electron has a solid balance sheet and didn’t need a deal to survive. That makes the deal stand out against other big inbound transactions, many of which involved a struggling target – such as Citigroup Inc’s $16 billion acquisition of broker Nikko Cordial in 2007-08 and Renault SA’s $5 billion injection into Nissan Motor Co almost a decade earlier.

Edward Johnson, a partner at law firm Orrick, Herrington & Sutcliffe, said the willingness of a blue-chip Japanese company like Tokyo Electron to cede control to a foreign rival could encourage other Japanese firms to consider similar moves.

“I don’t think it’s a one-off. I think it has broader implications,” said Johnson, whose practice includes advising foreign companies on investments in Japan.

While Japanese companies spent a record $83 billion on overseas acquisitions in 2012, inbound deals totaled just $15 billion.


Many international companies have refrained from making major investments in Japan due to a general perception the country is not open to foreign capital and a belief they would have trouble cutting costs.

In a development last year that seemed to confirm those concerns, a state-backed fund emerged to lead a bailout of struggling chipmaker Renesas Electronics Corp, beating off a rival bid by U.S. private equity firm KKR & Co.

Prime Minister Shinzo Abe has made inviting foreign investment one of the components of his strategy to revive the world’s third-largest economy, and investment bankers hope the Tokyo Electron deal will provide a spark.

An executive at a European investment bank said his firm was helping foreign clients scout possible targets among Japanese electronics and auto parts makers, although the size of those transactions would be much smaller than the Tokyo Electron deal.

Ken Siegel, managing partner at law firm Morrison & Foerster in Tokyo, said private equity funds continue to seek opportunities in Japan, but it could take time before corporate buyers follow Applied Materials’ lead.

“You would expect this would lead to some strategic transactions as well,” Siegel said, referring to the Tokyo Electron deal. “This is probably the first one. I don’t see a tonne of other strategic inbound deals lined up right this minute.”

Applied Materials CEO Moves Family to Tokyo in Biggest Purchase

Applied Materials Inc. (AMAT) Chief Executive Officer Gary Dickerson has cut deals throughout his career in the semiconductor industry. In landing his biggest purchase, he’s even moving his family from California to Tokyo, people familiar with the matter said.

Applied Materials yesterday agreed to acquire Tokyo Electron Ltd. (8035) for $9.39 billion in stock in one of the largest purchases of a Japanese company by an overseas buyer. Dickerson spent nine months working out the details of the deal and prevailed over resistance in Japan to foreign takeovers.

Dickerson is unifying two of the largest chipmaking equipment companies in a bid to stay ahead as customers in the semiconductor industry consolidate. The deal will help the maker of machines that cut circuits into silicon wafers invest more in research and development as demand for chips shifts to those used in smartphones and tablets.

“You’re either number one, or you’re struggling to survive,” said David Rubenstein, an analyst at Advanced Research in Tokyo. “The golden years are over. You have consolidation in a mature industry.”

Spending on semiconductor equipment is projected to decline 8.5 percent to $34.6 billion this year, hurt by shrinking investment by semiconductor manufacturers, according to Gartner Inc. Spending by the top five chipmakers will make up more than 65 percent of total 2013 spending, the Stamford, Connecticut-based research firm said.

Intel, Samsung

Intel Corp. (INTC), Taiwan Semiconductor Manufacturing Co. (2330) and Samsung Electronics Co. (005930), the three largest customers for both Applied Materials and Tokyo Electronic, account for most purchases in an equipment industry Rubenstein of Advanced Research estimates is worth about $40 billion a year. The companies have trimmed spending in response to a record slump in the personal-computer market.

Applied Materials’ acquisition probably won’t get blocked by regulators because the two companies produce different products that complement each other, said a person familiar with the deal who requested anonymity because the discussions are private.

Applied Materials, the largest chipmaking-equipment supplier, and Tokyo Electron, the biggest in Japan, projected cost savings of as much as $250 million within a year after the transaction is completed.

A chip-industry veteran of three decades, Dickerson had negotiated Applied Materials $4.9 billion cash acquisition in 2011 of Varian Semiconductor Equipment Associates Inc., where he served as CEO at the time.

The purchase of Tokyo Electron required Dickerson to overcome a history of Japanese opposition to takeovers by overseas companies, perceived as threats to job security.

Biggest Obstacle

“The biggest obstacle to acquisitions from overseas are Japanese employees,” Yuuki Sakurai, chief executive officer of Fukoku Capital Management Inc. in Tokyo, said in a phone interview. “We place importance on stable employment rather than the rights of shareholders.”

While the deal will leave Applied Materials shareholders with 68 percent of the new company, Dickerson and Tokyo Electron CEO Tetsuro Higashi described it as a “merger of equals.” That may have helped Tokyo Electron save face, Sakurai said.

“When you look at the reality, it’s an acquisition by Applied Materials,” Sakurai said.

Dickerson, who will be CEO of the combined company, will move to Tokyo with his wife and two children, said people familiar with the deal who requested anonymity because they aren’t authorized to publicly comment about its details. Higashi will be chairman, and the new company will have dual headquarters in Santa Clara and Tokyo.

‘Strong Friendship’

Dickerson and Higashi have known each other for 30 years and have “a very strong friendship,” Dickerson said on a conference call yesterday.

Even so, after Applied Materials first approached Tokyo Electron about a possible deal, the companies spent three months considering it, Higashi said at a press conference in Tokyo yesterday. The U.S. company suggested the deal at a semiconductor conference in Japan in December 2012, and “serious talks” began in March, Higashi said.

The acquisition of Tokyo Electron makes future deals between large U.S. or European companies and their Japanese counterparts “far less far-fetched” than before, Macquarie Group Ltd. analysts Damian Thong and Claudio Aritomi said in a report today.

Japanese Targets

“The surprising merger between Tokyo Electron and Applied Materials raises the tantalizing prospect of more cross-border M&A with Japanese firms as targets,” they said in the report.

Before running Varian, Dickerson worked at KLA-Tencor Corp. (KLAC), the Milpitas, California-based chipmaking equipment manufacturer, from 1986 to 2004. He was in charge of the company’s day-to-day operations as chief operating officer from 1999 and as president from 2002. He resigned in April 2004, saying he wanted to look for a CEO job at another company as the position at KLA wasn’t “in sight.” Varian named him CEO six months later.

The acquisition of Tokyo Electron also brings together two companies that are globalized and both number one in their respective regions, said Rubenstein of Advanced Research.

“Both sides know what they’re getting into,” he said. “There will be culture clashes, but these guys are a lot alike despite being from two sides of the Pacific.”

To contact the reporters on this story: Shigeru Sato in Tokyo at; Serena Saitto in New York at

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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