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Is the Cypress Deal Financially Attractive for Infineon?

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The deal

Germany-based Infineon Technologies plans to acquire US chip maker Cypress Semiconductor (CY) for a deal value of 9 billion euros ($10.06 billion). Infineon has agreed to pay $23.85 per share to Cypress’s shareholders, which some analysts consider to be too high. However, Infineon believes that the deal will bring it significant cost and revenue synergies, which makes the acquisition financially attractive.

Infineon’s CEO, Reinhard Ploss, has argued that the companies will complement each other with their products, so the deal will benefit both their employees and shareholders.

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Cost and revenue synergies from the deal

The acquisition of Cypress is expected to generate annual cost synergies of 180 million euros by 2022. The company also anticipates revenue synergies of more than 1.5 billion euros in the long term, which could help Infineon, which is struggling with sluggish revenue growth and pressurized margins.

Infineon has already made cuts in its 2019 revenue and margin guidance twice this year. Infineon expects its revenue to rise 9% if it closes the merger successfully.

The deal, which is likely to complete in late 2019 or early 2020, should also help Cypress expand in the automotive space. Infineon generates more than two-fifths of its total revenue from automotive accounts. Cypress expects its automotive unit to grow 8%–10% annually over the next five years and its Internet-of-Things unit to expand as much as 14% in the same period.

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