Infineon acquires Cypress Semiconductors in $10 billion deal

Infineon says the deal will secure future opportunities in automotive, industrial, and IoT markets.

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Infineon has announced the acquisition of Cypress Semiconductors in order to push further into the automotive, industrial, and Internet of Things (IoT) hardware markets.

Under the terms of the deal, the Neubiberg, Germany-based firm will pay $23.85 per Cypress share, which is equivalent to €9 billion (roughly $10 billion). The price point represents a 46 percent premium on Cypress' 30-day share price average from 15 April to 28 May 2019.

The purchase has been underwritten by a bank consortium. Infineon expects that approximately 30 percent of the $10 billion price tag will be financed through equity, while the rest will be managed through debt and cash on hand reserves.

Founded in 1999, Infineon provides semiconductors, microcontrollers, LED drivers, sensors, and power management systems to the enterprise. Cypress, too, offers a wide range of semiconductor hardware and microcontrollers but has tended to focus on chips suitable for powering next-generation products including smart vehicles and driver assistance solutions.

Infineon says that by acquiring the smaller company, this will "strengthen its focus on structural growth drivers and serve a broader range of applications," and the merger of both portfolios is "highly complementary." The company aims to eventually become the 8th largest semiconductor company in the world, and the deal is one more step towards this goal. 

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"Combining these technology assets will enable comprehensive advanced solutions for high-growth applications such as electric drives, battery-powered devices, and power supplies," Infineon added. "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."

Geographical considerations have also contributed to the acquisition. Infineon is well-known throughout Europe and has clients worldwide, but the purchase of Cypress is expected to increase the hardware giant's footprint in the United States, as well as the "strategically important" Japanese market.

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Infineon believes the buyout will result in €180 million in yearly cost synergies by 2022. However, at the time of writing, Infineon share value has dropped by 6.83 percent to €14.99, which may indicate that investors believe the agreed price for Cypress is too high or the acquisition was not the right step to take.  

"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," said Hassane El-Khoury, President and CEO of Cypress. "In addition, the strong fit of our two companies will bring enhanced opportunities for our customers and employees."

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The boards of both companies have agreed to the deal, which is expected to close by the end of 2019 or early 2020, following regulatory approval.

Credit Suisse and J.P. Morgan acted as lead financial advisors.

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