Infineon Prepares to Acquire Cypress for $ 10 Billion

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Infineon announced Monday that it has signed an agreement on the takeover of Cypress Semiconductor, reinforcing its portfolio of physical interface technologies. This will add a set of technologies and expertise needed to many emerging sectors, including the automotive, automotive and IoT industries. Infineon is expected to pay $ 10 billion.

Known primarily for its vast set of offerings for the automotive, wireless, security, power and sensor industries, Infineon needs an additional IP address for modern applications, watches to vehicles and planes. Cypress seems to have this IP address (and many others, including software / firmware) and that's where the synergies between the two companies start to get started. In the meantime, it is necessary to note that there are many areas where two companies overlap, expect optimizations here. However, structurally, Infineon will become much stronger, particularly in high growth emerging markets.

Officially, Infineon mentions applications such as electrical drives, battery powered devices and power supplies as reasons for the takeover. Yet there is more than that. The combination of Infineon and Cypress seems to be well above the sum of all parts as it allows Infineon to create platforms for a variety of emerging platforms in many industries.

Under the terms of the contract, Infineon will offer $ 23.85 in cash for all outstanding shares of Cypress, which equates to a business value of 9.0 billion euros (or more than $ 10 billion). USD) for Cypress, which represents a 46% premium over the unallocated 30 days of Cypress. volume-weighted average price over a recent period of 30 dates.

The full press release as well as executive quotes follow this coverage.

Infineon Technologies AG (FSE: IFX / OTCQX: IFNNY) and Cypress Semiconductor Corporation (NASDAQ: CY) today announced the signing of a definitive agreement that Infineon will acquire Cypress for US $ 23.85 per share. cash, corresponding to the value of the company. EUR 9.0 billion.

Reinhard Ploss, CEO of Infineon, said: "The planned acquisition of Cypress is a milestone in Infineon's strategic development. We will strengthen and accelerate our profitable growth and expand our business. With this transaction, we will be able to offer our clients the most complete portfolio to connect the real to the digital world. This will open up additional growth potential in the automotive, industry and internet of things sectors. This transaction also makes our business model even more resilient. We are looking forward to welcoming our new colleagues from Cypress to Infineon. Together, we will continue our joint commitment to innovation and targeted investments in research and development to accelerate technological progress. "

Hassane El-Khoury, President and CEO of Cypress, said, "The Cypress team is thrilled to partner with Infineon to take advantage of the multi-billion dollar opportunities resulting from the soaring the connectivity and IT needs of the next technology waves. This announcement not only reflects the strength of our team in delivering world-leading solutions, but also what can be achieved by uniting our two large companies. Together, we will create safer and more transparent connections and provide more complete hardware and software packages to strengthen our customers' products and technologies in their end markets. In addition, the strong integration of our two companies will bring better opportunities to our customers and our employees. "

Steve Albrecht, chairman of the Cypress board, said, "Over the past three years, our Cypress 3.0 strategy has produced remarkable results and has restructured the entire organization for focus on important markets. After attracting the interest of several companies, we concluded a transaction that reflects the strategy and hard work of our team. For Cypress shareholders, the combination of ongoing dividends up to closing and the cash price of $ 23.85 represents a significant value creation. This transaction will create increasingly important product opportunities in the competitive automotive, industrial and consumer markets. As board members, we are grateful to the outstanding Cypress leadership team led by Hassane El-Khoury. "

More robust positioning in high growth markets

With the addition of Cypress, Infineon will therefore strengthen its focus on structural growth vectors and serve a wider range of applications. This will accelerate the profitable growth of the business in recent years. Cypress has a differentiated portfolio of microcontrollers, software and connectivity components that complement Infineon's leading power semiconductor solutions, sensors and security solutions. The combination of these technology assets will create complete advanced solutions for high growth applications such as electric drives, battery powered devices and power supplies. The combination of Infineon's security expertise and Cypress's connectivity expertise will accelerate entry into new IoT applications in the industrial and consumer segments. In the automotive semiconductor sector, the expanded portfolio of NOR microcontrollers and flash memories will offer great potential, especially given their growing importance for advanced driver assistance systems and new electronic vehicle architectures.

Due to the strong R & D presence and geographic presence of Cypress in the United States, Infineon not only strengthens its capabilities for its major customers in North America, but also in other major geographic regions. The company is expanding its presence in Silicon Valley research and development and is gaining a presence and market share in the strategic Japanese market. At the same time, Infineon aims to achieve significant economies of scale, making Infineon's business model even more resilient. Based on a pro forma sales figure of 10 billion euros for the 2018 fiscal year, the deal will make Infineon the eighth-largest chip maker in the world. In addition to being a leader in the power semiconductor and safety controller market, Infineon will also become the leading chip supplier in the automotive market.

Improved financial strength after full integration

The acquisition will also enhance Infineon's financial strength, and Infineon's shareholders are expected to benefit from increased earnings from the first full year following the closing. Capital intensity will decline, leading to an increase in available cash flow. Infineon validated the assumptions of sales and cost synergies as part of due diligence. Expected economies of scale will create cost synergies of € 180 million per year by 2022. Complementary portfolios will provide additional chip solutions with potential revenue synergies greater than $ 1.5 billion euros per year over the long term.

Once the integration is successful, Infineon will adapt its target operating model accordingly. The company then aims for a full-cycle revenue growth of more than 9% and a segment profit margin of 19%. The investment / sales ratio is expected to decrease to 13%.

Details of the transaction

Under the terms of this agreement, Infineon will offer $ 23.85 in cash for all outstanding shares of Cypress. This corresponds to a fully diluted business value for Cypress of 9.0 billion euros. The offer price represents a premium of 46% over the unweighted average 30-day volume-weighted price of Cypress for the period from April 15 to May 28, 2019, the last day of trading preceding the information provided by the companies. media regarding a possible sale of Cypress.

Cypress plans to continue paying its quarterly cash dividends until the closing of the transaction. This includes the quarterly cash dividend of $ 0.11 per share previously announced by Cypress, payable July 18, 2019 to the registered holders of Cypress common shares at the close of business on June 27, 2019.

The financing of the acquisition is fully subscribed by a consortium of banks. Infineon is committed to maintaining a strong investment grade rating and, as a result, Infineon intends to ultimately finance approximately 30% of the total value of the equity transactions, the remainder in debt and cash on hand. The financial policy to preserve a strategic cash reserve remains in place.

The acquisition is subject to the approval of Cypress shareholders and relevant regulatory authorities, as well as other customary conditions. The closing is scheduled for the end of the calendar year 2019 or the beginning of 2020.

Credit Suisse and JP Morgan acted as senior financial advisors to Infineon. Bank of America Merrill Lynch also acted as financial advisor. The three banks acted as structuring banks in addition to providing committed financing for the transaction, with Bank of America Merrill Lynch in the lead. Kirkland & Ellis LLP and Freshfields Bruckhaus Deringer LLP act as legal counsel to Infineon.

Morgan Stanley acts as exclusive financial advisor to Cypress, while Simpson Thacher & Bartlett LLP is its legal advisor.