Applied Materials Inc, the largest producer of chip-making equipment yesterday said that it will acquire Varian Semiconductor Equipment Associates Inc. for $4.9 billion in cash in order to consolidate its leadership in wafer fabrication equipment (WFE).

Santa Clara, California-based will pay $63 per share in cash, representing a steep premium of 55 per cent to Tuesday closing price of $40.55, or a 38 per cent premium to Varian's 30 day average closing price. 

With 2010 revenues of $9.549 billion, Applied Materials is the global leader in providing innovative equipment, services and software to enable the manufacture of advanced semiconductor, flat panel display and solar photovoltaic products. Its technologies help make innovations like smartphones, flat screen TVs and solar panels.

The acquisition will extend Applied's leadership in wafer fabrication equipment (WFE) with the addition of the technology leader in ion implantation - a critical step in integrated circuit manufacturing. 

Varian's ion implant products complement Applied's Silicon Systems Group's suite of products in the areas of transistor, interconnect, wafer level packaging and patterning.

The combined company will provide customers a broad product portfolio for transistor formation, enabling the manufacture of higher performance chips particularly for mobile applications with faster speeds and longer battery life.  In addition, Varian's technology has strong potential to extend into adjacent markets, including solar, display and light emitting diodes.

Gloucester, Massachusetts-based Varian is a leading supplier of ion implantation equipment used in the fabrication of semiconductor chips. Varian designs, manufactures, markets and services semiconductor processing equipment for nearly all the major semiconductor manufacturers in Europe, Asia Pacific and the US.

Its VIISta ion implanter products are designed to leverage single wafer processing technology for the full range of semiconductor implant applications.

Varian has been ranked No1 in the VLSI Research Customer Satisfaction Survey 13 times over the last 14 years and had reported 2010 revenues of $832 million.

Applied said that it expects to fund the transaction with a combination of existing cash balances and debt and Varian will operate as a business unit of its Silicon Systems Group.

"Trends in chip complexity, transistor scaling and 3-D design are driving growth in the ion implantation market. Applied's broad capability in semiconductor equipment and Varian's ion implant expertise will allow us to work more closely with our customers on integrated process solutions at the transistor level," said Dr. Randhir Thakur, executive vice president and general manager of Applied's Silicon Systems Group.