Abstract
On May 4, 2011, Applied Materials, Inc.（Nasdaq:AMAT）announced to acquire Varian Semiconductor Equipment Associates, Inc.（Nasdaq:VSEA）for $63 per share in cash for a total price of approximately $4.9 billion. The price represents a 55 percent premium to the closing price on May 3, 2011. At that moment, AMAT was the biggest wafer fabrication equipment （WFE）provider all over the world. According to the report of Bloomberg, the deal is the biggest M&A case in the semiconductor equipment industry since 2006. First of all, the thesis reviews the brilliant history and the financial performance of these two great companies. Secondly, it bases on the public financial information before the M&A announcement to calculate the potential price of the acquisition. By “Comparables Method”, the outcome of the evaluation is far lower than the real dealing price by the boards of AMAT and VSEA. One of the reasons is it’s hard to have a 100% similar company in the public market to be the pricing reference of the target company. Also, the market price of the reference company could not represent its real value and results in the lower-pricing of the target company. By “Discounted Free Cash Flow Method”, the author uses both of the short-term and long-term information from AMAT and VSEA as the parameter values. It is because the corporate cultures and management efficiencies could approach to the same after the M&A. The DCF is to predict the future, so the analysis to the sensitivity is necessary. All the calculating results among the sensitivity analysis by DCF, are higher than the value comes from the Comparables Method. Also, the real dealing price of this M&A case is covered by DCF and its sensitivity analysis. No wonder DCF is the most practical method in the domain of the corporate valuation. The products of VSEA and AMAT are fully complementary. No matter the acquiring price is reasonable or not, it is a must from the viewpoint of strategy. For the short term, the benefit of this acquisition is no doubt. For the long term, is there enough synergy to cover the 55% premium? It could be another interesting topic.