CYPRESS Semiconductor (CY) Message Board

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Technology Stocks : CYPRESS Semiconductor (CY)

CY 23.82

0.0%

Apr 16 5:00 PM EST

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To: ValueScreen who wrote (2563)	1/12/2007 2:29:47 PM
From: professor	of 2694

Chapman Capital recently sent a letter to Cypress Semiconductor (CY-$18) stating that the Board should reorganize via a spin-off of Sunpower and a subsequent LBO transaction. The Board hasn’t responded but the pressure is mounting to unlock value embedded in its holding of Sunpower and core operations. The Company shrugged off a takeover overture of the company at $22 when Sunpower was trading in the high 20’s. Sunpower is now trading at $43. Cypress owns 52 million shares of Sunpower (SPWR). The increase in the price of Sunpower alone translates to an additional $4.00 in the value of Cypress. Taking a look at a historical chart using a 1 CY to .29 SPWR ratio one can see the remaining core value to be at a ridiculous low $5.53 while it got as high as $11.50 during takeover talks. As the Chapman letter eloquently states, TJ Rogers’s ego and desire to build his personal legacy is at odds with increasing shareholder value. prnewswire.com Insiders own less than 1.8% of the shares outstanding so their motivation is low and consequently institutions and public shareholders are increasingly growing impatient with the Board. One idea being kicked around that might satisfy both Rodgers and shareholders is a voluntary exchange offer for the portion of Sunpower stock that’s not needed to retain control. This works out to be approximately 17.5 million shares. A voluntary exchange offer would be tax free and could be structured similarly to the recently successful Chipotle / McDonald’s offer. The exchange ratio could be pegged at 1 CY for .55 SPWR. Why would shareholders support such a transaction? There are numerous reasons. Foremost, this would be the equivalent of CY doing a massive share buyback highlighting the underlying value. CY would be exchanging a high multiple stock for a low multiple stock, which would be highly accretive to earnings. Why would TJ Rogers, et al support such a transaction? The transaction could serve to fight off any potential takeovers of CY, as the value gap would narrow. Rogers has already seen a private equity firm show interest. This reduces this risk of losing control. There is no negative tax ramification to the company. Analysts would cheer that something was finally done to unlock value and might actually recommend the stock. SunPower sold stock in a secondary last summer at a price of $29.50. If it was attractive to sell stock then, surely it is compelling to sell SPWR 46% higher by Cypress. Some investors have bought CY and shorted SPWR to isolate their investment to CY core operations. The ability to short may be limited because of the high demand to borrow and establish this position. However, one could utilize SPWR call options that trade at a high volatility to create a like position. At a bare minimum it is hard to believe that the Board would not complete an exchange offer. Otherwise, they are just asking for trouble from institutions or inviting a hostile takeover. With the core value of Cypress trading at its low the opportunity to profit from this situation is compelling.

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