October 9, 2006 – Cypress Semiconductor Corp. said it has expanded the scope of its review involving “a variety of strategic alternatives” for the company and its SunPower solar-cell unit, fueling rumors that it may be the target for the industry’s next leveraged buyout by private equity investors.
In an SEC filing in July, Cypress announced it was already exploring ways to maximize the value of its majority ownership in SunPower, which was spun off last year
Doug Freedman, analyst with American Technology Research Inc., days ago suggested that an attractive strategy would be a tax-free distribution of SunPower shares to Cypress shareholders. Such a move would boost 2007 gross margins from 46% to 53%, and increase EPS by 30% to $1.34/share.
As to whether Cypress could be the next target for private equity investors, following Philips Electronics’ former semiconductor business and Freescale, Freedman thinks Cypress’ current management team wouldn’t be interested in a leveraged buyout given current premiums being offered, “as it would be selling on 2007 numbers and leaving growth on the table that seems to be just a couple of short years away,” he said. Also, “it is often the case that an LBO
leaves current shareholders on the outside looking in, and we do not believe CY management would pursue this course,” he said.