Integrated Silicon Solution Inc. (ISSI) is not happy. ISSI set out to merge with Cypress Semiconductor Corp. but the companies failed to reach a deal in the face of antitrust concerns.
ISSI complained that Cypress did not meet the deadline for inking the acquisition deal. Cypress in March proposed to buy ISSI for $19.25 per share, or about $640 million. In May, the company upped its offer to $20.25 a share, or approximately $643 million.
According to ISSI, a merger agreement “has been nearly fully negotiated with the only remaining point of difference being the treatment of the antitrust risks of the transaction.” ISSI argued that Cypress has “repeatedly downplayed antitrust concerns” but ISSI said the deal “presents significant antitrust risks in both the U.S. and Germany. ISSI alleged the deal would be unlikely to close without “substantial divestitures or other actions required by antitrust authorities.”
Off on the Wrong Foot
Cypress could not immediately be reached for comment. On Friday, Cypress announced to the world that it had received a financing commitment letter from Barclays Bank, and that it shared the letter with ISSI.
"As referenced in our June 2nd press release, Cypress can now confirm it has received a financing commitment letter on competitive terms from Barclays and shared the letter with ISSI," the company said. "This financing commitment further strengthens Cypress's offer and demonstrates Cypress's determination to close a transaction."
ISIS has deemed Cypress unwilling do everything possible to ensure the deal cleared antitrust agencies.
“If Cypress truly believes that the transaction does not present significant antitrust concerns then it should be willing to provide the contractual commitment that the ISSI board believes is in the best interests of its stockholders,” ISIS said in a statement. “By refusing to agree to the ISSI language, Cypress is placing ISSI's stockholders and the transaction closing at risk by creating an opportunity for Cypress to walk away from the deal if it does not receive a favorable antitrust decision.”
ISSI apparently isn’t giving up, though. The company said it is ready to move ahead with an agreement if Cypress is willing to take the steps to make sure the deal would close. Keep in mind that ISSI could have sold itself to a consortium of Chinese investors led by Summitview Capital for $19.25 a share in March but held out for Cypress’ higher bid.
Industry Consolidation Continues
The chip industry is undergoing consolidation. Chipmaker Avago Technologies is buying Broadcom Corp. for $37 billion in a cash and stock transaction. When the acquisition is complete, the merged company may not be the largest semiconductor company in the world but it will be an industry behemoth with annual revenues of about $15 billion. And Intel has announced it would buy Altera for $16.7 million in cash. Altera brings field-programmable gate area technology to Intel's treasure chest.
Zeus Kerravala, principal analyst at ZK Research, told us the chip industry is clearly consolidating and he said the consolidation should continue. Call it a response to market dynamics. It seems there are too many chip suppliers for demand. “As with most industries, as the chips base has grown more diverse with more solutions,” he said. “Smaller companies and startups are getting consolidated into larger organizations.”