Why Investors May Be Disappointed That KLA-Tencor And Lam Research Are Calling It Quits On Merger Talks

Lam Research Corporation LRCX and KLA-Tencor Corp KLAC have canceled their proposed merger due to antitrust issues. While there may be initial disappointment among investors, there are several catalysts to drive Lam Research’s stock, Morgan Stanley’s Joseph Moore said in a report.

Analyst Moore maintained an Overweight rating on Lam Research, with a price target of $105. He commented on the merger cancellation, “We're mildly disappointed, but not surprised given multiple delays.”

Investor Disappointment

Lam Research’s stock has slightly underperformed the semiconductor group year-to-date due to investor concern surrounding “the significance of regulatory delays around the proposed acquisition of KLAC, which has now officially fallen through,” Moore noted.

Lam Research’s shares could initially respond negatively to the news, since there was “considerable enthusiasm” around the potential deal from both short and long term investors, and the deal was expected to be 11 percent accretive. The analyst added, however, there are is “a strong fundamental case for the stock at these levels regardless of the deal.”

Buyback Expected

Lam Research has significant cash, and investors are eager to see the company buyback shares now that the potential deal with KLA-Tencor has fallen through. Moore explained that repurchasing its own shares makes the most sense for Lam Research, since the regulatory environment is not allowing for capital to be used more strategically.

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