There is some M&A news in the semiconductor space this morning as Germany-based chipmaker, Infineon (IFNNY) announced it will acquire Cypress Semi (CY) for US$23.85 per share in cash for a total enterprise value of €9.0 bln. Cypress closed on Friday at $17.82, so this represents a 34% premium.
This deal was not a total surprise as a Bloomberg.com report last week said that Cypress is exploring strategic options including a potential sale, according to people familiar with the matter. The stock jumped higher on that report last week. As such, the premium Infineon is paying is actually 50+% from before the Bloomberg report was published.
Cypress Semi focuses on making flash memory chips and microcontrollers. Cypress is known as a key supplier for Apple (AAPL), but it has exposure beyond consumer electronics. Other markets include automotive, industrial, smart home appliances, and medical products. A key part of its strategy has been to focus on high growth areas, such as automotive and IoT (Internet of Things).
Infineon CEO Reinhard Ploss describes the deal as a "landmark step in Infineon's strategic development. The combination of Infineon's security expertise and Cypress's connectivity know-how will accelerate entry into new IoT applications in the industrial and consumer segments."
There has been a lot of consolidation in the semiconductor industry over just the past few months. In March 2019, ON Semiconductor (ON) announced it will acquire Quantenna Communications (QTNA), which focuses on Wi-Fi chipsets. Also, in March, NVIDIA (NVDA) announced it will acquire Mellanox Tech (MLNX). Then, just last week, NXP Semiconductors (NXPI) announced it would acquire Marvell's (MRVL) Wireless Connectivity portfolio.
It's clear that chipmakers believe that building scale is a good way to blunt the impact of weaker demand from China. What's interesting is that Infineon has lowered revenue guidance twice this year. You would think that the company would want to focus on getting its business turned around. However, it's clear that it sees Cypress' end markets as having better growth prospects and it sees Cypress' products as attractive complementary pieces to its current portfolio, particularly in automotive where both companies have a robust offering.
In sum, this deal seems to make sense for both sides. Infineon is adding what it sees as a nice fit that will perhaps help get the company out of its recent slump. For Cypress shareholders, the 50+% premium since reports first started to surface is a nice boost to the stock price. Investors may question why Infineon would pay such a high premium, but it sounds like it had competition as CY said in the press release that it had received interest from several companies.