SAN JOSE — Cypress Semiconductor and another Silicon Valley chipmaker, Spansion, on Monday announced a stock merger they valued at about $4 billion.
The combination, which will have to be approved by both companies’ stockholders as well as by government regulators, is expected to be completed in the first half of next year. Under the deal, San Jose-based Cypress will retain its name and essentially gobble up Spansion, based in Sunnyvale. Spansion’s shareholders would get 2.457 Cypress shares for each Spansion share they own, giving shareholders of both companies about 50 percent ownership of the new business.
Cypress CEO T.J. Rodgers will be CEO of the merged company and Spansion’s CEO, John Kispert, will be on the combined company’s board, along with three other Spansion directors.
“This unification is compelling,” Kispert said during a conference call with analysts. By joining forces, “we should be able to gain share in the combined markets we’re focused on,” he added. “It makes us very formidable in every part of the world.”
Rogers sounded similarly enthusiastic.
“I just want to point out how happy we are to join the business together,” he said. “It’s a strategic fit. We’ve got tremendous growth opportunities.”
Officials with the two firms said the combined company should have sales of about $2 billion a year. Last year, Cypress’ annual sales totaled $723 million and Spansion’s totaled $972 million. Both lost money that year.
Investors seemed to like the news. Cypress’ stock price, which fell 17 cents to $10.43 before the announcement, rose more than 11 percent in after-hours trading. Spansion’s shares, which fell 52 cents to $22.85 at the market’s official close, jumped nearly 18 percent after that.
Cypress is best known for its so-called programmable system-on-a-chip products, which can be tailored to a wide variety of applications. Spansion is mostly known for its memory chips, which store data, and its microcontrollers, which preform specific and generally limited functions.
Rogers said some of the major markets to be targeted by the combined company would be the automotive business, where vehicles are being increasingly computerized, and the innumerable smart gadgets being developed for the Internet of Things.
Rodgers indicated that some cost savings could be achieved by combining the two companies’ sales forces and other staffs. But officials with the companies were vague about how many employees might be laid off in the merger. As of their most recent annual reports in December last year, Cypress had about 3,400 employees and Spansion had 3,685. Each company has about 390 employees in the Bay Area.
Technology analyst Roger Kay said the deal “looks like a sensible merger of two companies looking to expand in the nascent but highly competitive Internet-of-Things market.”
Tech analyst Patrick Moorhead agreed, saying “it makes sense because it buffers the company’s weaknesses and accentuates their strengths.”
Although the companies said financial benefits from the merger might not be realized for at least another year, “this all looks really good on paper,” said Feltl & Co. analyst Jeffrey Schreiner, noting one big benefit of the merger is that it should allow the companies to use their manufacturing operations more efficiently.
But the fact that the two chipmakers are similar in size and in many of their operations could pose a challenge, because such mergers are unusual, said tech analyst Rob Enderle.
“Because these are so rare, the skill set needed to pull this off is almost nonexistent inside or outside of the company,” he said. “To pull this off they are going to need to make a lot of difficult decisions very quickly. And if they were good at this, the need to merge in the first place would likely have been far less.”
Contact Steve Johnson at 408-920-5043. Follow him at Twitter.com/steveatmercnews.
