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Infineon Technologies AG agreed to buy Cypress Semiconductor Corp. for about $8.7 billion in cash, the latest mega-deal for an industry grappling with slowing growth.
The $23.85 a share offer is a 34% premium to Cypress’s Friday close, and is 50% above the price the stock was trading at on May 29, when Bloomberg first reported takeover interest in the San Jose, California-based company. Including debt, the deal values Cypress at 9 billion euros ($10 billion), the companies said in a statement.
“Cypress’s products ideally complement our own offerings,” Infineon Chief Executive Officer Reinhard Ploss said on a call with reporters Monday. “The company is a perfect fit -- technologically and strategically.”
The market didn’t appear to agree. Cypress shares were trading at $22.10 as the market opened in New York, below the offer price. Infineon fell as much as 10% in Frankfurt to its lowest level since September 2016, and S&P Global Ratings put the company on review for a possible ratings downgrade, citing concerns over financing. Some analysts raised concerns that the transaction would face antitrust scrutiny, which has stymied other chip mergers over the past few year.
The planned acquisition requires that investors take a “longer-term leap of faith,” which will be difficult given the uncertainty around near-term demand, analysts at Citibank wrote in a note to investors.
Infineon is financing the acquisition so that the company still meets "all requirements for an investment-grade rating,” Ploss said on the call. Management is "feeling very comfortable” when it comes to regulatory approval, he said.
Still, the combined entity would have sales that would place it among the top 10 of chip-makers globally, according to Citibank. Buying Cypress will hand Infineon a memory chip maker re-positioning itself as a provider to automobiles and other connected devices. The semiconductor industry has been reshaped over the past five years as companies combine to gain scale while fighting rising costs and shrinking customer bases. NXP Semiconductors NV recently announced a $1.76 billion deal for Marvell Technology Group Ltd.’s Wi-Fi connectivity business, while Nvidia Corp. agreed to buy chipmaker Mellanox Technologies Ltd. for $6.9 billion in March.
Infineon until now has mostly sat on the sidelines amid consolidation in the industry. In 2017 a deal to acquire U.S. rival Wolfspeed from Cree Inc. for $850 million was called off after the U.S. raised national security concerns. The German company could face regulatory hurdles again in the midst of escalating trade battles involving the U.S. China effectively killed Qualcomm Inc.’s planned $44 billion takeover of NXP Semiconductors NV last year by withholding its approval for more than 20 months. China later said it wasn’t to blame for the deal falling apart.
Infineon has lost almost a third of its value over the past year as the chipmaker twice revised its forecasts to account for global economic uncertainty and a slowdown in Chinese car sales.
What Bloomberg Intelligence Says
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.
-- Anand Srinivasan and Johnathan Ritucci, analysts--Click here to read the research
San Jose, California-based Cypress designs and manufactures flash memory chips and microcontrollers, or chips used for powering small electronic devices. The company has been trying to recast itself as a provider of chips for vehicles and the growing market for the so-called internet of things, the push by the electronics industry to connect devices. Cypress has told investors it expects its automotive business to grow 8% to 12% over the next five years and its IoT unit to expand at as much as 14% in that period.
Annual revenue, helped by an acquisition, has more than doubled in five years to $2.5 billion in 2018. Analysts are predicting that sales growth will disappear this year, forecasting a contraction of about 11%, according to the average of analysts’ estimates from data compiled by Bloomberg.
(Updates with shares.)
--With assistance from Stefan Nicola.
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