Why Cypress Semiconductor Jumped 24.8% in June

The semiconductor leader is being acquired. Here's what investors need to know.

Steve Symington
Steve Symington
Jul 3, 2019 at 9:24PM
Technology and Telecom

What happened

Shares of Cypress Semiconductor (NASDAQ:CY) climbed 24.8% in June, according to data from S&P Global Market Intelligence, after the company agreed to be acquired by Germany-based Infineon Technologies (NASDAQOTH:IFNNY).

To be sure, virtually all of Cypress' climb last month came on June 3, 2019, when the company told investors it would be acquired for $23.85 per share in cash, or roughly 9 billion euros. That was good for a nearly 34% premium from Cypress' previous-day's close, and a 46% premium over its 30-day volume-weighted average price.

Woman drawing large yellow fish eating smaller fish on a wall.

IMAGE SOURCE: GETTY IMAGES.

So what

Infineon, for its part, plans to fund roughly 30% of the acquisition with new stock, and the remainder with a combination of debt and cash on hand. Cypress and Infineon also anticipate combining forces will yield around 180 million euros in annualized cost synergies by 2022, and over 1.5 billion euros in annual synergies over the longer term.

Infineon CEO Reinhard Ploss called the deal "a landmark step in Infineon's strategic development," particularly as the two companies' combined product portfolios create "additional growth potential in the automotive, industrial, and Internet of Things sectors."

Cypress CEO Hassane El-Khoury echoed that sentiment, stating, "Jointly, we will enable more secure, seamless connections, and provide more complete hardware and software sets to strengthen our customers' products and technologies in their end markets."

Now what

In the meantime, Infineon expects the transaction will be accretive to its earnings and cash flow margins starting the first full fiscal year after it closes -- with the close currently estimated to happen by the end of this calendar year or early 2020. But that's also assuming the acquisition receives the necessary approval of both Cypress shareholders and government regulators.

With shares still trading around 7% below the agreed acquisition price, that also means current Cypress shareholders could still enjoy modest gains by hanging on until the ink is dry. But if you believe there's any risk this deal could fall through -- and assuming waiting longer to sell doesn't result in more favorable long-term capital gains taxes on your profits -- I certainly wouldn't blame Cypress shareholders for selling now and putting their money to work elsewhere.