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Applied Materials to buy Varian for $4.9b

Semiconductor firms’ deal latest in Mass. tech mergers

By Todd Wallack
Globe Staff / May 5, 2011

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Applied Materials Inc., the world’s largest maker of semiconductor fabrication equipment, unveiled plans yesterday to buy Varian Semiconductor Equipment Associates Inc. of Gloucester for $4.9 billion, making it the biggest local tech deal this year.

The announcement is the latest in a spurt of mega-mergers to sweep the state. Other recent local deals include Sanofi-Aventis’s $20 billion acquisition of Genzyme Corp. of Cambridge, NStar’s $17.5 billion marriage with Northeast Utilities, and Interactive Data Corp.’s $3.4 billion sale to a group of private equity investors.

“New England will always be a fertile source for tech deals, but we’re also seeing a significant uptick in activity in the banking, financial services, health care, and energy industries,’’ said Nicole J. Desharnais, a Boston attorney with Nutter McClennen & Fish LLP, who specializes in mergers and acquisitions.

Varian is one of a number of local companies that make tools and equipment to manufacture microchips for computers and other electronic devices.

The company traces its roots to 1975, when Varian Associates Inc. bought Extrion Corp, a Gloucester company that specialized in ion implantation technology — which harnesses a beam of electrically charged particles to help create transistors on silicon wafers. It is now a $1.5 billion market.

Applied Materials said it thought Varian’s technology would complement its own products to help manufacture chips with faster speeds and longer battery life for wireless devices such as smartphones. But Applied Materials said the technology also has potential for other markets, including solar and light emitting diodes.

“Today’s deal represents the best and largest acquisition opportunity in the semiconductor equipment space, and we are delighted with the agreement we have reached,’’ Applied Materials chief executive Michael Splinter told analysts in a conference call.

Varian didn’t return calls seeking comment. But in a statement, Varian chief executive Gary Dickerson said the deal was attractive for customers, employees, and shareholders alike.

He said Applied Materials had the capa bility to “unlock the tremendous potential’’ of its technology for other markets.

After the deal is completed, Applied Materials said it plans to continue to operate Varian as a business unit based in Gloucester but will consolidate offices outside Massachusetts. Varian has 1,600 employees, largely in Gloucester.

Applied Materials offered $63 per share in cash for Varian, a 55 percent premium to its closing price on Tuesday. Varian shares shot up 51 percent yesterday on the Nasdaq stock market to $61.36 a share, a sign that investors believe it is likely the deal will be completed.

Varian’s sales, like those at other semiconductor equipment manufacturers, plummeted after the recession began in December 2007, but have rebounded sharply as the economy recovered.

The company recorded a $159.6 million profit last fiscal year ending Oct. 1, reversing a $38 million loss in 2009. Its revenue more than doubled to $831.8 million last year.

More broadly, the deal is a fresh reminder that Massachusetts continues to boast a robust tech sector, with a number of billion-dollar companies that rarely garner headlines but make critical equipment for businesses behind the scenes.

“We are more concentrated than the rest of the country in information technology, life sciences, and other high-knowledge industries, and that has allowed our economy to perform better than the country as a whole,’’ said Northeastern University economist Alan Clayton-Matthews.

Clayton-Matthews noted there has been a seemingly endless of parade of companies that have been bought out in Massachusetts over the years, though they are often replaced by start-ups or other companies expanding here to take advantage of the state’s educated workforce and research institutions.

“Sometimes I think that one of the areas we specialize in is making businesses and selling them,’’ Clayton-Matthews said.

A recent survey by BDO, a US accounting and consulting group, predicted the wave of tech mergers will likely continue to heat up.

“There is a significant amount of pent-up demand and opportunity,’’ said Hank Galligan, leader of BDO’s technology group in Boston.

Galligan said the latest wave is being driven both by the increased ease in financing deals and the strengthening economy, which has made it easier for companies to focus on outside deals instead of just weathering the storm.

“If you are worried about your own financial performance,’’ Galligan said, “it is hard to drop a lot of other things into the mix.’’

Todd Wallack can be reached at twallack@globe.com.