Cypress Semi Ditches Its Solar Power Ambitions
By Anders Bylund
September 10, 2008
Cypress Semiconductor (NYSE: CY) has decided to become a chip-design business. Shock! Horror!
OK, if that didn't sound like a drastic move, you should know that a good deal of the company's $1.9 billion trailing revenue came from its 49% ownership of solar power specialist SunPower (Nasdaq: SPWR). Cypress will lose out on its share of SunPower's $1.1 billion trailing revenues. Maybe now the magnitude of this change is sinking in.
Cypress shareholders of record at the close of trading Sept. 17 will be entitled to 42 million Class B shares in SunPower, and the actual distribution of shares will be made after Sept. 29. Cypress will liquidate its entire stake in the solar power outfit.
This spin-out basically forces Cypress to focus on its core semiconductor chip business, so it'll be easier to evaluate that company on its own merits now. I'm surprised to see the shares becoming sort of a fat dividend rather than being sold off to another corporation or on the open market, returning a big stack of cash to Cypress itself. But maybe the two companies' biggest institutional owners had a say in the matter.
Most of these vote-laden shares will go to institutional investors, as 93% of all Cypress stock belongs to various financial institutions. Janus Capital Group (NYSE: JNS) and Fidelity combine for an approximately 29% share of Cypress Semi -- and around 8.4% of SunPower's share count. They're the two largest shareholders in both SunPower and Cypress. That dynamic duo will essentially run the show at SunPower now.
The eight-votes-per-share B stock is getting a separate Nasdaq listing, and in the future you need to decide between buying SPWRA Class A shares or the fresh SPWRB cache. You've seen this before in companies like Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) or Viacom (NYSE: VIA) (NYSE: VIA-B), for example. It's a somewhat cumbersome concept for us individual investors, but it gives the big-money boys more flexibility in their buying decisions.
Management estimates that its shareholders are getting about $3.6 billion of value handed down to them, putting the expected Class B share price at $86 or so. That puts a price premium on those extra votes. Mr. Market will undoubtedly adjust that ratio to his liking in due time.
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