€8 Billion Infineon Completes Acquisition of Cypress for €9 Billion in Cash

Infineon Technologies AG closed the acquisition of Cypress Semiconductor Corporation.

The San Jose, CA-based company has become part of Infineon effective as of the closing.

“The acquisition of Cypress is a landmark step in Infineon’s strategic development,” said Infineon CEO Reinhard Ploss. “Together, we offer our customers the industry’s most comprehensive portfolio for linking the real with the digital world and shaping digitalization, one of the most important global trends. We serve as a trusted partner for customers and distributors and we are evolving from a leader in components to a leader in system solutions for the automotive, industrial and IoT markets. Furthermore, customers can benefit from our increased global reach and enhanced design-in support tailored to their needs. We welcome our new colleagues from Cypress to Infineon“.

Portfolio of each companies

The addition of Cypress lets Infineon strengthen its focus on structural growth drivers and on a range of applications. This will accelerate the company’s path of profitable growth. The acquired company adds a differentiated portfolio of microcontrollers, connectivity components, software ecosystems and high-performance memories. All this is complementary to Infineon’s power semiconductors, automotive microcontrollers, sensors and security solutions. Combining these technology assets enables solutions for high-growth applications such as ADAS/AD, IoT and 5G mobile infrastructure. The addition of Cypress’ R&D capabilities and its foothold in the US and Japan strengthen buyer’s connections with customers around the world.

Financial rationale of merger confirmed
On 3 June 2019, the two companies announced that they had signed a definitive agreement under which Infineon would acquire Cypress for $23.85 per share in cash, corresponding to an enterprise value of €9.0 billion. The transaction has been approved by the acquired firm’s shareholders and all required regulatory clearances have been obtained.

The deal is expected to be accretive to earnings in FY21. The profitability is expected to rise while capital intensity of the combined business will decrease, increasing free cash flow. It is expected annual cost synergies of €180 million gradually ramping up over approximately 3 years after closing. The complementary portfolios will enable the offering of additional chip solutions with a revenue synergy potential of more than €1.5 billion per annum in the long term.

The acquisition makes the buyer one of top 10 semiconductor manufacturers. Already leader in power semiconductors and security controllers, it is now also becoming the ≠1 semiconductor supplier to the automotive industry.

Stable and long-term refinancing structure
The acquisition is initially funded through a combination of cash on hand and a committed acquisition financing facility provided by a consortium of 20 national and international banks. With maturities ranging from March 2022 until June 2024 for individual tranches, the acquisition facility provides time and flexibility for long-term refinancing measures to arrive at the target capital structure.

The buyer is committed to retaining an investment grade rating and therefore, unchanged from the initial announcement, it intends to ultimately finance approximately 30% of the total transaction with equity. With the share placement and the issuance of the hybrid bond in 2019, it has already done steps towards achieving the desired quantum. Given current macro uncertainties caused by the coronavirus pandemic, a solid balance sheet and a strong liquidity position are key. To this end, the company will keep liquidity corresponding to its target level of €1 billion plus at least 10% of sales.

Furthermore, a consistent deleveraging path will be pursued in order to bring the ratio of gross financial debt to EBITDA back to its target value of maximum 2.0x over the mid-term.

Infineon reported sales of €8.0 billion with about 41,400 employees worldwide.