Infineon to swallow Cypress in a move to expand product portfolio
According to Ploss,the planned acquisition will put Infineon’s business on a broader basis. “This transaction also makes our business model even more resilient”, Ploss said.
With the addition of Cypress, Infineon will consequently be able to strengthen its focus on structural growth drivers and serve a broader range of applications. Cypress has a differentiated portfolio of microcontrollers as well as software and connectivity components that are regarded as highly complementary to Infineon’s power semiconductors, sensors and security solutions. Combining these technology assets will enable comprehensive advanced solutions for high-growth applications such as electric drives, battery-powered devices and power supplies. “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,” Infineon said in a press release. In automotive semiconductors, the expanded portfolio of microcontrollers and NOR flash memories is expected to offer significant potential, especially in light of their growing importance for advanced driver assistance systems and new electronic architectures in vehicles.
With the addition of Cypress’s strong R&D and geographical presence in the U.S, Infineon not only strengthens its capabilities for its major customers in North America, but also in other important geographical regions. The company adds to its R&D presence in Silicon Valley and gains presence, as well as market share, in the strategically important Japanese market. At the same time, Infineon aims to achieve significant economies of scale, making its business model more resilient. Based on pro forma revenues of €10 billion in FY 2018, the transaction will make Infineon the number eight chip manufacturer in the world. In addition to its strong position in power semiconductors and security controllers, the Bavarian chipmaker believes that he will now also become the number one supplier of chips to the automotive market.
The acquisition will also improve Infineon’s financial strength and Infineon shareholders are expected to benefit from earnings accretion beginning in the first full fiscal year after closing. The capital intensity will decrease, resulting in an increasing free cash flow margin. Infineon has validated sales and cost synergies assumptions as part of due diligence. Expected economies of scale will create cost synergies of €180 million per annum by 2022. The complementary portfolios will enable the offering of further chip solutions with a revenue synergies potential of more than €1.5 billion per annum in the long term.
Upon successful integration, Infineon will adapt its target operating model accordingly. Then, the company targets through-cycle revenue growth of 9+ percent and a segment result margin of 19 percent. The investment-to-sales ratio is targeted to decrease to 13 percent.
Under the terms of the agreement, Infineon will offer US$23.85 in cash for all outstanding shares of Cypress. This corresponds to a fully diluted enterprise value for Cypress of €9.0 billion.
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