Infineon To Acquire Cypress Semiconductor For €9 bln.

Infineon To Acquire Cypress Semiconductor For €9 bln.
June 5, 2019

 

The German chip maker, Infineon, is acquiring the US company Cypress Semiconductor Corporation (NYSE: CY) in a deal valued at 9 billion euros ($10.06 billion), including debt. Cypress designs and manufactures flash microcontrollers and memory chips that are used in small electronic devices. Following the news, Cypress shares have so far appreciated roughly 25%. The stock closed at $22.20 yesterday. During the rally, the stock of Cypress also hit a new 12-month high of $22.40.

When compared with the closing price of San Jose, California-based Cypress shares in May, the cash offer of $23.85 per share and the dividend together represents a 46% premium.

Infineon has estimated that the acquisition will result in cost synergies of €180 million per year in the next three years and revenue synergies of over €1.50 billion in the long-term.  Almost 30% of the total acquisition cost is planned to be funded by equity, while the rest will be funded via debt and cash in hand.

The payment structure has been designed in such a way that Infineon will still meet “all requirements for an investment-grade rating,” according to Chief Executive Officer Reinhard Ploss. He is confident that management will not face any problem regarding regulatory approval.

Commenting on the acquisition deal, Infineon Chief Financial Officer Sven Schneider said “Street Signs Europe” that the cost and revenue benefits justify the transaction. Schneider also pointed out that Infineon, in line with the prevailing norm in the semiconductor business, has accepted to pay 4.5x times revenue for Cypress.

The CFO also stated that the merged entity would “strengthen the link between the real and the digital world.” He further noted that the combined enterprise would gain the reputation of being the eighth largest semiconductor enterprise across the world and would aim to achieve annual revenues of €10 billion.

While speaking to reporters, Reinhard Ploss said “Cypress’s products ideally complement our own offerings. The company is a perfect fit — technologically and strategically.”

Following the acquisition, the merged entity will be listed in the top 10 global chip manufacturers by sales, as per a report by Citibank. Furthermore, the acquisition of Cypress will enable Infineon to reposition itself as a supplier to automobiles and other connected gadgets.

Cypress anticipates its automotive division to record a growth of between 8% and 12% over the next five years and its IoT unit to register a growth of 14% in the same period. In the past five years, annual revenue, aided by a takeover, has more than doubled to $2.5 billion in 2018.

Cypress Semiconductors was established in 1982 by an intelligent chip engineer named T.J. Rodgers. The company gained recognition by developing a range of memory, internet of things, and sensor chips.

Rodgers quit in 2016 but acted as an activist shareholder of the enterprise. In the 80s and 90s, Rodgers was regarded as the most unyielding boss in Silicon Valley, regularly calling for accountability on the part of employees and executives. He had opined that enterprises should definitely set “big, hairy, audacious goals” in order to achieve higher results.

The acquisition is anticipated to be finalized by the end of 2019 or early 2020. This takeover deal reflects the continuation of the consolidation trend in the semiconductor industry. Recently NXP Semiconductors NV bid $1.76 billion to acquire Wi-Fi connectivity business of Marvell Technology Group Ltd., while Nvidia Corp. acquired integrated circuit manufacturer Mellanox Technologies Ltd. for $6.9 billion in March.

Bloomberg analysts Anand Srinivasan and Johnathan Ritucci had the following to say about the acquisition: “Infineon’s reported plans to acquire Cypress may result in some arduous integration work, with the buyer focused on power chips and the target on Internet of Things and specialty memory. Infineon makes about a quarter of its sales in China, which has turned into a headwind as the economy slows. It will need stronger 2H sales to meet its 8 billion-euro sales guidance.”

The acquisition news is expected to keep the stock of Cypress bullish in the days to come.

The historical price chart indicates that the stock has broken above the upper end of the trading range. Furthermore, the Chaikin money flow indicator is also making new highs. As a result, we are expecting the stock to remain bullish in the short-term.

cy - technical analysis -5th June 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Ian Maguire

Ian Maguire

Ian is our resident contributor to the latest going ons in the cryptomarket, keeping up to date with the latest icos and coins


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