Infineon to buy Cypress Semiconductors in $10 billion deal

“With the addition of Cypress, Infineon will consequently strengthen its focus on structural growth drivers and serve a broader range of applications,” it added.

Infineon shares traded more than 5 percent lower by 0730 GMT with some traders questioning whether Infineon was overpaying.

The Germany chipmaker said it intends to finance about 30% of total transaction value with equity and remainder with a combination of debt and cash.

Asked about how the deal came about, Infineon Chief Marketing Officer Helmut Gassel said discussions had been triggered by interest expressed in Cypress by another party. Infineon was invited to take part in the process around five weeks ago, he said.

The acquisition will reap cost synergies of 180 million euros per year by 2022 and revenue synergies of more than 1.5 billion euros in the long term, Infineon said.

Once Cypress Semiconductors has been integrated, Infineon targets through-cycle revenue growth of 9% or more and a segment result margin of 19 percent. The investment-to-sales ratio is targeted to decrease to 13 percent.

Infineon expects to keep its investment grade credit rating after the deal, Chief Financial Officer Sven Schneider said.

Infineon’s leverage ratio, measured as debt to earnings before interest, taxation, depreciation and amortization (EBITDA) will, however, exceed a target of two times before returning to that level in late 2022, Schneider told analysts.

The Board of Directors of Cypress and the Infineon Supervisory Board have already consented to the acquisition, which is expected to close in late 2019 or in early 2020.