Infineon digs deep to buy chip rival Cypress in $10bn deal

Shares in German company slide as investors worry over cost of deal

Reinhard Ploss, chief of German semiconductor manufacturer Infineon. Photograph: Michael Dalder/File Photo/Reuters

Reinhard Ploss, chief of German semiconductor manufacturer Infineon. Photograph: Michael Dalder/File Photo/Reuters

 

Infineon has agreed to buy Cypress Semiconductors in a deal that values the US maker of microchips used in cars and electronic devices at €9 billion ($10.1 billion) including debt. The announcement sent shares in the German company lower on concerns over the cost.

The cash offer of $23.85 per share represents a 46 per cent premium to Cypress’s share price over the past month. That equates to a multiple of 4½ times sales at Cypress.

“It’s a proud price, no doubt,” said Infineon chief executive Reinhard Ploss on a conference call. “From our point of view, it was an acceptable price, and, if you look at the synergies, it represents an additional gain in value.”

Chief marketing officer Helmut Gassel said discussions had been triggered by interest expressed in Cypress by another party. Infineon was invited to take part in the process about five weeks ago.

Infineon was among the few companies in a sector facing headwinds that could finance a deal that in more prosperous times might have been out of its reach, Mr Ploss said.

Price fears

Investors took a dimmer view, however, sending shares in Munich-based Infineon just under 9 per cent lower on fears that it was overpaying in a transaction that will be 30 per cent financed through equity, with the rest paid for in debt and cash.

One trader speculated that Infineon could itself become a takeover target after the company twice lowered its revenue guidance this year as demand in China slowed and trade frictions escalated between Washington and Beijing.

The deal made sense on a technology basis, but represented “a cycle peak price” at a time when the industry is at a cyclical trough and visibility is low, said Mirabaud Securities analyst Neil Campling.

The deal to create the world’s number eight chipmaker ranks as one of the biggest takeovers led by a European company this year and follows a slowdown in activity in the first quarter.

Infineon said it expected the deal, subject to regulatory approval, to close by the end of this calendar year or in early 2020, creating a market leader in the automotive sector with a global share of more than 13 per cent. – Reuters