Infineon Buyout of Cypress Semi May Be Trumped by Security Concerns

Last June, German semiconductor maker Infineon Technologies agreed to purchase U.S. chipmaker Cypress Semiconductor Corp. (NASDAQ: CY) in a deal that put an enterprise value of €9.0 billion (about $10 billion) on the San Jose-based Cypress. At the time, the $23.85 per share price reflected a 46% premium to the price of Cypress stock.

The shares had given back more than a third of that by Friday morning, following reports of a recommendation that the United States squash the transaction for national security reasons.

The Treasury Department’s Committee on Foreign Investment in the United States (CFIUS) reportedly has recommended that the president block the acquisition. While CFIUS never publishes details of or comments on its reviews, Infineon’s close ties to China are the likeliest cause of the recommendation to kill the sale.

According to Bloomberg, China accounts for up to a third of Infineon’s sales. CFIUS would be rightly wary of any transaction involving advanced American technology being snapped up by a Chinese buyer.

The Trump administration has cited national security concerns in blocking two earlier transactions that would have brought U.S. tech companies under Chinese control. In March of 2018, Broadcom Inc.’s (NASDAQ: AVGO) $117 billion hostile takeover of Qualcomm Corp. (NASDAQ: QCOM) was set aside. In September of 2017, the president blocked the $1.9 billion takeover of Lattice Semiconductor Corp. (NASDAQ: LSCC) by a Chinese government-backed private equity firm.

CFIUS also blocked a 2017 attempt by Infineon to buy the Wolfspeed semiconductor business of Cree Inc. (NASDAQ: CREE) for $850 million. Wolfspeed’s gallium nitride products have been replacing silicon in a variety of radar and wireless applications.

Cypress does sell some specialized memory chips to the Pentagon, but more than 70% of its revenue comes from its microcontroller and connectivity division. Total revenues in 2019 were $2.2 billion on a gross margin of nearly 38%. Both were lower than in 2018.

Cypress stock closed down about 17.4% on Thursday and traded down another 14.3% in the late morning Friday at $16.45. The stock’s 52-week range is $14.42 to $23.55.

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