Cypress share price down, to acquire fellow chipmaker Spansion

Cypress Semiconductor Corp is buying Spansion Inc in a $1.59-billion stock deal in order to create a company that will manufacture memory chips utilized in many consumer and business technologies.

After the deal is completed the new company is set to become the biggest supplier of chips for embedded systems.It will combine Cypress expertise in variety of SRAM chips, used in consumer electronics, with Spansions developing skills of NOR flash memory, applied to various industrial systems.

“Bringing together these high-performing organizations creates operating efficiencies and economies of scale, and will deliver maximum value for our shareholders, new opportunities for employees and an improved experience for our customers,” said John Kispert, Spansions CEO.

In line with the deal, which the companies described as “merger of equals”, shareholders in Spansion will get 2.457 Cyrpress shares in exchange for one of their own, the companies said in a joint statement. The ratio ensures that each shareholder group ends up with 50% ownership of the new company. The deal was valued at $1.59 billion based on Cypress’s closing price of $10.43 on Monday.

T.J. Rodgers, Cypress’s CEO, will be appointed as chief executive of the new company, while Spansion’s chairman Ray Bingham will serve as non-executive chairman. The new eight-member board will consist of four directors from each company.

Cypress projected $135 million in annual savings for the first three years within closing the deal, which is expected to completed in the first half of 2015. The company also said it would continue to pay quarterly dividend of $0.11 per share, but expects the merger to boost adjusted earnings per share for first year within closing, and to generate more than $2 billion in yearly revenue.

“Both companies have well-positioned businesses, both companies bring complementary products,” Mr. Rodgers said on a conference call. “Scale really matters for us.”

The combined company will keep the name Cypress Semiconductor, with headquarters in San Jose. However, should the merger be dropped, the company canceling the deal would have to pay a $60 million termination fee to the other firm and/or reimburse it as much as $5 million in expenses.

Spansion Inc lost 2.23% on Monday and closed at $22.85, on Tuesday the stock gained 22.45% to trade at $27.98 at 15:12 GMT. The company has a market capitalization of $1.42 billion.

Cypress Semiconductor Corp lost 1.60% on Monday and closed at $10.43 on the NASDAQ. The stock gained 15.72% to trade at $12.07, marking a one-year increase of 28.47%. The company is valued at $1.68 billion. According to the Financial Times, the 10 analysts offering 12-month price targets for Cypress have a median target of $10.00, with a high estimate of $13.00 and a low estimate of $8.00. The median estimate represents a 4.12% decrease from the last closing price of $10.43.