Cypress Semiconductor Corporation (CY) has inked a definite agreement with Spansion (CODE) to merge in a $4 billion all-stock, tax-free deal. The merger will create a global provider of microcontrollers and specialized memory chips for embedded systems and is expected to generate more than $2 billion in annual revenues.
The company will be called Cypress Semiconductor Corporation, be headquartered in Cypress’s San Jose offices and have an eight-member board of directors comprising four Cypress directors and four Spansion directors.
The deal values Spansion at about $1.6 billion in stock, based on Cypress' closing share price of $10.43. Spansion shareholders will get 2.457 Cypress shares for every share that they hold, and shareholders of each company will get around 50% shares of the new business.
Both Cypress and Spansion are chipmakers. While Cypress specializes in a variety of memory chips called SRAM, Spansion specializes in NOR flash memory chips. The deal combining the two major players in the global chip industry will be one of the biggest technology mergers in recent years. After its merger with Spansion, Cypress will further strengthen its leadership position in the semiconductor integrated circuits market.
The post-merger entity is expected to be a leader in NOR Flash and SRAM memories. The deal is expected to be accretive to pro forma earnings in the first full year of operation for the combined entity. Moreover, cost synergies are expected to be $135 million on an annualized basis within the first three years of operation.
While the proposed business combination has been approved by shareholders of both the companies, it is still under antitrust review by several regulators. The transaction is expected to close in the first half of 2015 after the regulatory approval.
Cypress shares currently have a Zacks Rank #4 (Sell). Other stocks that are performing well include Nitto Denko Corp. (NDEKY) and TriQuint Semiconductor, Inc. (TQNT). Both carry a Zacks Rank #1 (Strong Buy).
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