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Chip gear maker ASML buys Cymer for $2.5 billion

By Roberta Cowan

AMSTERDAM (Reuters) - ASML, the world's leading provider of tools for making computer chips, is buying U.S. group Cymer for 1.95 billion euros ($2.5 billion) to get control of a light-based technology crucial to making smaller, smarter chips of the future.

The Dutch company said that the cash-and-shares acquisition would speed up the development of extreme ultraviolet (EUV) semiconductor lithography, which will help produce chips to power future generations of smartphones and tablet computers.

It is upgrading its machines to produce these smaller, faster chips. In July, it sold a 23 percent stake to its three biggest customers, Intel, Samsung Electronics and Taiwan Semiconductor Manufacturing, to help finance research into the technology behind its new equipment.

ASML and San Diego-based Cymer have both been working on EUV technology but progress has been slow.

"Combining the two companies will definitely speed up the development of this EUV source," said Chief Financial Officer Peter Wennink."

ASML's funding for the Cymer acquisition, its biggest, will be three-quarters shares and one-quarter cash. Cymer shareholders will receive $20 in cash per Cymer share plus 1.1502 ASML shares.

The total price is a premium of 61 percent to Cymer's recent share price. Cymer's shares jumped 48.80 percent to $71.16 on the Nasdaq.

ASML will pay the $630 million cash component from its 3 billion euros of available reserves and issue new shares for the rest, an ASML spokesman said.

The deal might face scrutiny from antitrust regulators since Japan's Nikon, a key AMSL competitor in lithography, is a customer of Cymer's current technologies, DUV and IBP, said Steifel Nicolaus analyst Patrick Ho.

"By acquiring Cymer and their core DUV and IBP business, … that would be selling products to their direct competitor in Nikon. That's obviously an awkward situation," Ho said.

Rabobank analyst Peter Scholte said the deal, which is due to close in the first half of next year, highlights the difficulties in EUV development and is an expensive way for ASML to get it back on track.

ASML said that the deal is expected to boost earnings per share within two years. Bernstein analyst Pierre Ferragu said assuming the deal closes by next March, he'd expect earnings to be diluted for the year by around 4 percent.

Analysts said they did not expect the deal to lead to other acquisitions because ASML's and Cymer's leadership in EUV is unique.

"This is a one-of-a-kind deal triggered by EUV, which is not even a product yet. EUV is pretty much down to ASML," said RBC Capital Markets analyst Mahesh Sanganeria.

DOWNBEAT MESSAGE

ASML, a bellwether for Europe's technology sector, also reported lower-than-expected third-quarter orders and said fourth-quarter sales would be at the low end of forecasts. It declined to give a 2013 outlook.

Its trading update echoed the downbeat message from technology peers. Intel, one of ASML's biggest customers, said on Tuesday that its outlook remained weak for the rest of the year because of falling computer sales.

Earlier this month research firm Gartner said that worldwide industry spending on chip equipment would slow in 2013 because of deteriorating economies.

ASML's third-quarter order book was 831 million euros, lower than the 899 million euros analysts had forecast.

Third-quarter net profit was 275 million euros, compared with a forecast 278 million euros.

Shares of ASML, which has a market share of more than 80 percent, and competes with Japanese groups Canon and Nikon, hit a record high of 48.34 euros in July after the deal with its top customers. They closed down 5.25 percent at 39.145 euros on Wednesday.

(Additional reporting by Gilbert Kreijger in Amsterdam and Noel Randewich in San Francisco; Editing by Erica Billingham and Steve Orlofsky)

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