Photograph by Cianluca Colla/Bloomberg
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Cypress Semiconductor
stock was soaring on Monday on news that
Infineon Technologies
is purchasing the chip maker in a $9.4 billion deal. Infineonâs shares were tumbling.
The back story. There had been rumors that Cypress (ticker: CY) was looking for a buyer, in a field that has had a number of deals recently. Last week, the Netherlandsâ
NXP Semiconductors
(NXPI) announced it would buy
Marvell Technolgyâs
(MRVL) Wi-Fi and Bluetooth connectivity business. That follows
On Semiconductorâs
(ON) purchase of
Quantenna Communications
(QTNA) in March for its Wi-Fi portfolio. Â
Whatâs new. On Monday, Germanyâs Infineon (IFX.Germany, IFNNY)) said it would purchase California-based Cypress Semiconductor for $23.85 a share, in an âŹ8.4 billion ($9.4 billion) deal that Infineon believes will add to earnings in the first full year after it closes (either later this year or early 2020, the company estimates, pending regulatory approval). Infineon is projecting annual cost synergies of âŹ180 million a year by 2022, and ultimately deliver upwards of âŹ1.5 billion of annual revenue synergies, thanks to the broader range of products the combined company will offer.
Looking ahead. Cypressâs portfolio of connectivity chips, which bring devices online, looks especially attractive, because the market goes far beyond just computers and phones. Everything from cars to thermostats and TVs are getting âsmarterâ by the year. In fact, the addition of Cypress would make Infineon the worldâs biggest semiconductor supplier to that industry.
So why are Infineon investors seemingly so unhappy with the move? There could be several reasons, among them that the automotive-chips business hasnât been especially good for Infineon lately, given the slowdown in Chinese auto demand. That contributed to its guidance cut earlier this year. Also, the company has failed to get regulatory approval for past deals involving U.S. companies. But the big stumbling block is price. Infineonâs offer represents a 46% premium to Cypressâs 30-day volume-weighted average price, and speculation about a takeover has boosted the shares recently. And the move comes amid an unsettled market for chip stocks, which were pummeled along with the rest of the market in May.
It is common for shareholders to complain about the price of a deal, and Infineon CEO Reinhard Ploss may not have helped much when commented that the price was âhefty,â albeit warranted because of the potential growth he believes Cypress will bring. Still, the ultimate price isnât that far off what some analysts estimated Cypress could fetch in a buyout.
Cypress stock was up 24% to $22.10 early Monday, while Infineonâs American depositary receipts were down 7.6% to $16.42 and its shares in Germany were down 8.7% to âŹ14.69. The
S&P 500
was down 0.4%
Write to Teresa Rivas at teresa.rivas@barrons.com
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