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Actionable news in KLAC: KLA-Tencor Corporation,

Prospectuses and communications, business combinations


Filed by KLA-Tencor Corporation

Pursuant to Rule 425 under the Securities Act of 1933

and deemed filed pursuant to Rule 14a-12

under the Securities Exchange Act of 1934

Subject Company: KLA-Tencor Corporation

Commission File No.: 000-09992

Lam Research Corp. (LRCX)

Acquisition of KLA-Tencor Corporation by Lam Research Corporation Call


Martin Brian Anstice

Richard P. Wallace

President, Chief Executive Officer & Director, KLA-Tencor Corp.


James V. Covello

Farhan Ahmad

Bill C. Peterson

Timothy M. Arcuri

Cowen & Co. LLC

C.J. Muse


Operator : Good day, and welcome to the Lam Research Corporation September 2015 Conference Call.

At this time, I would like to turn the conference over to Audrey Charles, Vice President of Investor Relations. Please go ahead.

Audrey Charles

Vice President, Investor Relations

Thank you, operator. Thank you and good morning, everyone. With me today are Martin Anstice, President and Chief Executive Officer of Lam Research, Rick Wallace, President and Chief Executive Officer of KLA-Tencor, Doug Bettinger, Executive Vice President and Chief Financial Officer of Lam Research and Bren Higgins, Executive Vice President and Chief Financial Officer of KLA-Tencor.

Prior to turning the call over to Lam and KLA management to share their perspective on this exciting business combination, I will read a few preliminary legal notices of the proposed transaction. The proposed transaction will be submitted to the stockholders of each of Lam and KLA for their consideration.

Lam intends to file with the SEC a Registration Statement on Form S-4 that will include a joint proxy statement/prospectus of Lam Research and KLA-Tencor. Investors and security holders of Lam and KLA are urged to read the joint proxy statement/prospectus and any other relevant documents that will be filed with the SEC carefully and in their entirety when they become available because they will contain important information about the proposed transaction.

The materials to be filed by Lam and KLA with the SEC may be obtained free of charge at the SEC website at In addition, security holders will be able to obtain free copies of the joint proxy statement/prospectus from Lam or KLA by contacting Lam or KLA Investor Relations through the Investor Relations contact page on each companys website, or

This call may include forward-looking statements that involve risks and uncertainties. These include statements regarding future outcomes and events including the time and the parties ability to close the transaction. The anticipated benefits, technological advances and synergies to be realized as part of the proposed transaction and the anticipated structures of future combined operations.

Actual events or results may differ materially from those described in this call due to a number of risks and uncertainties detailed in documents filed by Lam Research and KLA-Tencor with the SEC including Form 10-K filings, Form 8-K filings, filings under Rule 425 and the joint proxy and registration statements the parties expect to file.

With that, Ill turn our call over to Martin Anstice.

Martin Brian Anstice

President, Chief Executive Officer & Director

Thank you, Audrey. I would like to start this morning by thanking you for joining us at short notice.

Today, we announced that Lam Research and KLA-Tencor will be combining. We believe that this transaction will allow us to deliver compelling value to a transforming semiconductor industry by combining industry leaders in wafer processing and process control to help our customers address their most difficult challenges.

Together, we will deliver unmatched capability creating a new paradigm for process and process control, delivering optimized results in partnership with our customers by reducing variability and accelerating yields, helping our customers extend Moores Law and performance scaling generally. The new company will have increased breadth and scale, both valuable components for sustaining long-term growth.

The technical competency and capability of the combined company, which is illustrated by our respective product leadership positions, will benefit our employees, customers and stockholders alike. We are confident that, together, we will deliver higher levels of innovation and collaboration than would be possible as independent companies.

We are certain that, just as we identify the need for closer alignments of deposition and etch, which resulted in our successful merger with Novellus, the opportunity for closer alignments between process and process control creates an exciting opportunity as the drive to reduce variability at the atomic level becomes central to our customers high-volume manufacturing success.

The transaction offers compelling financial opportunities including the expansion of our served market and substantial synergies. We expect to realize $250 million of cost synergies within 18 to 24 months of transaction close and $600 million of revenue synergies by 2020. The transaction will be accretive to our non-GAAP earnings and free cash flow per share during the first 12 months of the transaction.

If I could direct you to slide five of our power point deck today, here are a few of the highlights of the transaction. KLA-Tencor stockholders will receive $32 in cash and 0.5 shares of Lam Research per KLA-Tencor share, effectively valuing the company at $67.02 per share or $10.6 billion using Lams stock price as of October 20.

On a pro forma basis, KLA shareholders will own approximately 32% of the combined company. Both boards have unanimously approved the transaction and, pending customary regulatory and shareholder approvals, we expect to close in mid-2016. The combined company will be called Lam Research.

We strongly believe this is the right combination for our industry at the right time. The powerful drivers of clouds, mobility and IoT are firmly established and growing. The demands of these segments, higher performance, lower power and smaller form factors, increase the economic and technical challenges faced by our customers, providing a catalyst for broad industry transformation.

Our customers and their customers both demand new levels of innovation and collaborative engagements as they continue to scale with new materials, the transitions of 3D device architectures, multi-patterning imaging, advanced packaging integration schemes and next generation memory solutions.

The ability to differentiate in these technology inflections increasingly lies at the intersection of process and process control. Together, we will be much better-positioned to meet these challenges by combining best-in-class process performance with industry-leading metrology, inspection and analytical capability. We seek to create unmatched and complementary capability to enable atomic level processing.

I am looking forward to formally welcoming the KLA-Tencor employees to our new company. These are two companies with similar cultures and values, geographic proximity with a passion to contribute and win and to take pride in doing things the right way in the interests of our customer. I look forward to listening, learning and building a strong team together with them as we create a more exciting future.

And before handing the call to Rick, I want to thank him personally and, also his team, for their leadership and vision in creating a great company and working with us putting together what we believe is an extremely compelling transaction.

Rick, over to you.

Richard P. Wallace

President, Chief Executive Officer & Director, KLA-Tencor Corp.

Thank you, Martin.

This is truly a transformational day in the industry and for both companies. Ive spent 28 years at KLA-Tencor, and Ive seen several industry transformations. But in my opinion, this combination has the potential to be the most transformative both from a capability and from a timing perspective.

Our customers are on the cusp of ramping some incredibly complex technologies with roadmaps for advanced development over the next decade already in place. And KLA and Lams combined capability to partner with our customers on improving the manufacturability and the yield of these technologies will be a powerful value creator in the space to a degree that neither of us could achieve as standalone companies.

The SAM expansion thats been experienced by Lam, driven by the inflections of 3D device architecture and multi- patterning, will complement KLA-Tencors strong presence in foundry and logic and create both SAM and market share expansion opportunities for both companies.

Were proud of what weve built at KLA and the value that weve delivered. The scale achieved by combining with Lam substantially enhances our future value creation potential, making this transaction a win both for today and for tomorrow. KLAs strong results and guidance today and the confidence we have in continuing our growth in 2016 are a direct result of our efforts with our customers in the last decade to enable industry transitions and scaling.

I want to recognize our employees, whose dedication to excellence across all aspects of the organization, have made this performance possible. Through the discussions weve had to date with Lam, its been reinforcing to me that the capability and the culture of our companies are very similar, and that will be a key component to the success of this combination. And I also want to thank Martin for his leadership, and I am very confident in the success of this company under his leadership as we go forward.

And with that, let me hand it back to Martin.

Martin Brian Anstice

President, Chief Executive Officer & Director

Thanks, Rick.

As we have said many times, our guiding principle for effective consolidation in our industry is first focused on the legitimacy of innovation strategies and the opportunity for sustainable value creation from the perspective of our customers.

With this threshold validated here, we are excited to deliver compelling value to all stakeholders by combining the established leaders in deposition, etch, clean, inspection and metrology. However, the rationality of this transaction lies in our belief that the combination is substantially stronger than the sum of the parts.

By joining the critical device manufacturing areas of process and process control, our two companies combined will become a more knowledgeable, more capable and closer partner to our customers, better positioning us to innovate the solutions required to meet the industrys needs together.

For example, in logic and DRAM multi-patterning, as we highlighted at our Analyst Day in July of this year, the key challenges faced in high-volume manufacturing for multi-patterning schemes are variability and costs. By more effectively linking the process control expertise of KLA and Lams strength in process around critical technology inflections, we can improve efficiency and utility of metrology information for optimization of the unit process at a much greater depth.

This represents the potential for faster and better solutions for our customers and opportunities for differentiation and profitable growth for us. It is already clear that the level of integrated controls we will be able to deliver becomes even more critical at 7-nanometer and beyond where substantially high levels of control of patterning processes will be required in support of our customers roadmaps.

In the 3D NAND space, high-aspect ratio structures and long process times increase cost and complexity. We plan to utilize our combined leadership capability and deposition, etch and metrology to innovate and develop process control capability or 3D NAND structures to help enable cost-effective vertical scaling.

Our increased scale and breadth will enable multiple value creation drivers. From the market perspective, when we combined Lams inflection-driven SAM expansion, which we believe extends throughout this decade, with KLA strong presence and new product momentum in wafer and mask inspection and optical and overlay metrology, we expect to compete for more than 45% of WFE by 2018.

Worthy of note, the complementary nature of our presence in the WFE market is striking. Lam has historic strength in memory applications and has made meaningful progress in the logic segments of WFE over the last several years. Lam also has technology inflection growth drivers in logic and memory both, with multi-patterning process flows and 3D device architecture.

KLA has a relatively stronger presence and opportunity in the logic segments with exciting new product introductions. The wafer fabrication equipment segments complement is a powerful commentary on the combined companies opportunity to sustain growth through the specific investment cycles of our increasingly large and consolidated customers.

We also see meaningful cost and revenue synergies available including $250 million of annualized cost synergies realizable within 18 months to 24 months of closing as well as a strong revenue synergy opportunity of approximately $600 million by 2020 made possible by strengthening units process performance and value of our core product offerings.

Finally, our shares and well-established operating excellence, combined with our deal specific commitments to prioritize deleveraging our balance sheet, support our commitments to profitable growth. All of these value creation drivers will reside in a business with increased diversity of people, product portfolio, market segments and customer exposure. More opportunity, no question.

With that, let me turn the call over to Doug. He will cover the financial details of our transaction as well as offer a brief review of our September quarter performance and December 2015 outlook.

Doug Bettinger

Executive Vice President and Chief Financial Officer

Thank you, Martin. Im going to start with the transaction summary, which you can see on slide 12.

Lam Research will acquire all of the outstanding KLA-Tencor shares in a cash and stock transaction that values KLA at $10.6 billion in equity value, or approximately $67.02 per share. The deal provides that KLA-Tencor stockholders may elect to receive, in exchange for their shares, the economic equivalent of $32 in cash and 0.5 of a share of Lam Research common stock in all cash, stock, or mixed consideration subject to proration as more fully described in the merger agreement.

To finance the purchase, Lam will issue approximately 80 million new shares and approximately $3.9 billion of new debt. We are committed to maintaining an investment-grade rating.

The combined company will have a healthy cash position of approximately $5.3 billion and a very strong cash flow generation profile. We expect to begin deleveraging soon after closing, with an objective to get below a 2.5 times gross debt to EBITDA as soon as possible.

As Martin mentioned, we expect to realize $250 million of annualized cost synergies within the within 18 months to 24 months of close as well as approximately $600 million in annualized revenue synergies by 2020. We expect the transaction to be accretive on an earnings and free cash flow per share basis during the 12 months after closing.

The combined company will retain the Lam Research name. Martin Anstice will lead the company as CEO, and we anticipate a combined company leadership team with strong representation from both companies across all functions.

Lams Chairman, Steve Newberry, will continue in that role, and two board members from KLA will join the combined company board effective as of the time of closing. As mentioned earlier, the boards of both companies have unanimously approved the transaction. The transaction is subject to customary, regulatory approvals and the approval of both Lam and KLA shareholders.

Weve already begun integration planning, and our efforts will be helped significantly by our close geographical proximity, our long history of close collaboration as well as our collective experience of successfully integrating companies. We currently estimate receiving all approvals on a timely basis and that the transaction can be funded and closed in mid-2016.

Martins already highlighted many of the financial benefits of the transaction. Id like to take that a step further and shed some light on how we view the combined companys financial model.

That starts with a sizable expansion of the revenue opportunity and increased diversity of our business. Given the complementary...