Infineon Confirms Deal To Buy Cypress Semiconductor For $10B

Merger Monday has dawned with an announcement of a multi-billion dollar deal in the semiconductor space, which has been recently plagued by an industry downcycle as well as China tariff woes.

What Happened

Within a week after rumors swirled of a potential sale, Cypress Semiconductor Corporation CY confirmed it has agreed to be acquired by Infineon Technologies AG IFNNY for $23.85 per share in cash, translating to an enterprise value of 9 billion euros, or $10.05 billion.

The per share offer price represented a 46-percent premium to the 30-day volume-weighted average price for the period ending May 28, the day prior to the one when reports of a potential sale emerged.

Since the German chipmaker intends to retain a solid investment grade, it said it will ultimately finance about 30 percent of the total deal value with equity and the remainder with debt as well as cash on hand. The companies expect the deal to close in the end of 2019 or early 2020.

Why It's Important

Cypress, which makes flash memory chips and microcontrollers powering small electronic devices, has expressed its intention to focus on the automotive market and the Internet of things, or IoT.

For Infineon, the going has been tough amid geopolitical tensions, and the pursuit of inorganic growth is seen as a move to revitalize its sagging growth.

"With this transaction, we will be able to offer our customers the most comprehensive portfolio for linking the real with the digital world," said Reinhard Ploss, CEO of Infineon. "This will open up additional growth potential in the automotive, industrial and Internet of Things sectors. This transaction also makes our business model even more resilient."

It may also be noted Infineon failed to secure U.S. antitrust regulatory clearance for its proposed buy of Cree, Inc. CREE's Wolfspeed Power Unit in 2017.

What Next

The closing of the transaction is subject to approval by Cypress shareholders, and securing of other regulatory approvals and customary closing conditions.

Infineon expects economies of scale to create cost synergies of 180 million euros per anum by 2022.

Following successful integration, Infineon said it targets through-cycle revenue growth of 9+ percent and a segment result margin of 19 percent.

Cypress Semi's stock traded higher by 24 percent to $22.18 per share Monday morning.

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Photo courtesy of Cypress Semiconductor.