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Infineon buying Cypress Semi in latest chip mega-deal

Transaction values US target at US$10b; it remains to be seen whether Infineon can win necessary approvals

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Infineon has lost almost a third of its value over the past year, as the chipmaker twice revised its forecasts to account for global economic uncertainty and a slowdown in Chinese car sales.

New York

INFINEON Technologies AG agreed to buy Cypress Semiconductor Corp in a deal that values the US target at about US$10 billion, the latest mega-deal for an industry grappling with slowing growth.

The deal confers an enterprise value of nine billion euros (S$13.8 billion) on Cypress, a memory chip maker re-positioning itself as a provider to automobiles and other connected devices.

Infineon's cash offer of US$23.85 a share marks a 46 per cent premium to Cypress's average price over the past 30 days, the companies said in a statement confirming an earlier Bloomberg report.

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The semiconductor industry has been reshaped over the past five years as companies combine to gain scale while fighting rising costs and shrinking customer bases.

NXP Semiconductors NV recently announced a US$1.76 billion deal for Marvell Technology Group Ltd's Wi-Fi connectivity business, while Nvidia Corp agreed to buy chipmaker Mellanox Technologies Ltd for US$6.9 billion in March.

But Infineon until now has mostly sat on the sidelines. It's lost almost a third of its value over the past year, as the European chipmaker twice revised its forecasts to account for global economic uncertainty and a slowdown in Chinese car sales. Infineon's offer values Cypress at roughly US$8.7 billion based on its outstanding shares alone, excluding debt.

Anand Srinivasan and Johnathan Ritucci, analysts at Bloomberg Intelligence, said: "Infineon's reported plans to acquire Cypress may result in some arduous integration work, with the buyer focused on power chips and the target on Internet of Things (IOT) and specialty memory. Infineon makes about a quarter of its sales in China, which has turned into a headwind as the economy slows. It will need stronger H2 sales to meet its eight billion-euro sales guidance."

Infineon's target designs and manufactures flash memory chips and microcontrollers, or chips used for powering small electronic devices.

Cypress has been trying to recast itself as a provider of chips for use in vehicles and the growing market for so-called IOT, the push by the electronics industry to connect devices. It has told investors it expects its automotive business to grow 8 per cent to 12 per cent over the next five years and its IOT unit to expand at as much as 14 per cent in that period.

Annual revenue, helped by an acquisition, has more than doubled in five years to US$2.5 billion in 2018. Analysts are predicting that sales growth will disappear this year, forecasting a contraction of about 11 per cent, according to the average of analysts' estimates from data compiled by Bloomberg. "This will accelerate the company's path of profitable growth of recent years," Infineon said in its statement.

It remains to be seen whether Infineon can win the necessary regulatory approvals in the midst of escalating trade battles. China effectively killed Qualcomm Inc's planned US$44 billion takeover of NXP Semiconductors NV last year by withholding its blessing for more than 20 months. China later said it was not to blame for the deal falling apart. BLOOMBERG