The largest producer of chipmaking equipment, Applied Materials, Inc., has agreed to acquire Varian Semiconductor Equipment Associates Inc. for almost five billion dollars in cash. Experts are saying that Applied Materials is essentially buying its way back into a business where it was losing ground.

Namely, the business is ion-implantation machinery, which is part of the creation of every computer chip. Varian was a rival that was consistently besting Applied Materials in this area. Varian's sales doubled last year, far outpacing Applied Materials. The acquisition also gives Applied Materials solar and LED technology.

Applied Materials is prepared to pay $63 per share for Varian, which is a 55% markup on the pre-announcement price.

Both companies' boards have approved the merger.

Some experts foresee a rise in spending by semiconductor manufacturers, and the newly merged company will be in a position to take advantage of the rise if and when it comes.

San Diego mergers and acquisitions attorneys note that an Applied Materials-Varian deal would be the biggest in five years in the semiconductor business. In those five years, Applied materials has made thirteen other deals, most recently the acquisition of silicon wafer preparation company Semitool for $364 million in 2009.

Observers believe Applied Materials will be able to pay off the debt associated with the deal in a short time, since it has about $2.7 billion of cash on hand and an estimated $1.2 billion or more of excess cash flow coming this year.

Applied Materials Chief Executive Officer Mike Splinter said, "Varian is a great fit for our strategy to profitably grow share in our core semiconductor business with best-in-class technology and talent."

Source: Bloomberg "Applied Materials Agrees to Acquire Varian Semiconductor for $4.9 Billion" 5/4/2011