CFIUS Clears the Way for Cypress Semiconductor Acquisition

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Cypress Semiconductor Corp. (NASDAQ: CY) shares jumped on Tuesday after the announcement that the Committee on Foreign Investment in the United States (CFIUS) has completed its review of the Infineon Technologies merger proposal. Ultimately, CFIUS determined that there were no unresolved national security concerns with respect to the proposed merger.

Note that the merger remains subject to regulatory approval from China’s State Administration for Market Regulation and other customary closing conditions under the merger agreement.

In the past, CFIUS reportedly recommended that the president block the acquisition. While CFIUS never publishes details or comments on its reviews, Infineon’s close ties to China are the likeliest cause of the recommendation to kill the sale. However, this does not appear to be the case, with the agency’s decision to allow this merger.

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 Semiconductor stock traded up about 44% at $22.03, in a 52-week range of $14.57 to $23.55. The consensus price target is $23.49.

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