Morgan Stanley: Spansion's Merger With Cypress To Increase Scale and EPS Accretion

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announced on Monday they will merge in a 50-50 all-stock deal with a conversion ratio of 2.457 Cypress shares for each Spansion share. The companies believe that the combination will create a global leader in microcontrollers and specialized memories for embedded systems. In a note to clients on Tuesday, Craig Hettenbach of Morgan Stanley stated that the combination of the two companies will create increased scale and earnings per share accretion. “We think investors will respond favorably to this combination as both management teams made a persuasive case that the deal would be a merger of ‘equals' and the cost synergies seem very achievable,” Hettenbach wrote. According to Hettenbach, the combination of the two companies will create $135 million in cost synergies which could lead to long term accretion to earnings per share even without revenue growth. The analyst adds that around half of the synergies will come from cost of goods manufactured as Cypress has a “solid” reputation of being a “strong” manufacturer. In addition, Hettenbach sees a compelling opportunity for cross-selling and improved presence in the distribution channel.