UPDATE: Credit Suisse Reiterates On Cypress Semiconductor On Merger Agreement

In a report published Tuesday, Credit Suisse analyst John W. Pitzer reiterated a Neutral rating on Cypress Semiconductor Corporation CY, and raised the price target from $9.50 to $12.00. In the report, Credit Suisse noted, “Post mkt CY announced a definitive agreement to merge with CODE in an all-stock transaction valued at $4bn. Upon closure, CODE shareholders will receive 2.457 CY shares per CODE share, with the implied $28.60 value a 25.3% premium from CODE's $22.85 closing price. The deal is expected to close in C1H15 with mgmts ‘conservative' estimate for accretion after the first full year post-close, though best case performance could drive breakeven 2-3qtrs post close. "The combined company is expected to realize $135m in cost synergies over the next three years with GM / OpM targets of 50% / 20%, primarily from improved fixed cost efficiencies which is expected to take 12-18mo to facilitate and operational overlap. The $0.11/shr dividend remains unchanged. We view the deal as positive for CY as it brings the company to scale ($2bn annualized rev vs. ~$700m), enables synergies at the product level (ie Embedded Memory and Embedded MCU) and offers complimentary end market exposure – post-close CY will have 57% I/A/I exposure, and expects to be a top 5 Auto semi provider. Base case, annualizing C3Q14 pro forma for the combined company implies rev / EPS of $2.0bn / $0.56, including $135m synergies takes EPS to $0.98 (+$0.42), and against CY16 50%-ile CY rev of $908m and CODE CY16 Street estimate of $1.4bn at target 20% OpM implies $2.3bn / $1.37.” Cypress Semiconductor closed on Monday at $10.43.