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Cypress Proposes to Buy Ramtron

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Cypress Semiconductor Corporation (CY - Free Report) has proposed to buy all of Ramtron International Corp.'s outstanding stock for $2.48 per share in cash, a 37% premium to Ramtron's closing price of $1.81 on June 11.

Ramtron International is a fabless semiconductor company with about 35.0 million shares outstanding. This would represent a purchase price of about $86.8 million. Ramtron supplies ferroelectric random access memories and has Texas Instruments Inc. (TXN - Free Report) and Toshiba Corp. as manufacturing partners. In the first quarter of 2012, Ramtron reported revenue of $15.0 million with a net profit of $445,000.

This is Cypress’ second attempt to take over its peer Ramtron International. In March 2011, Cypress tried to acquire Ramtron, but its offer of $3.01 per share was rejected . Ramtron stock has fallen 41% over the past 12 months. Though the new formal offer is lower than the one Cypress made last year, the percentage premium of 37% remains the same as offered earlier. Soon thereafter, Ramtron sold almost 20% of its stock in a dilutive public offering at a net price of $1.79 per share.

Cypress has retained Greenhill & Co. as its financial adviser and Wilson Sonsini Goodrich & Rosati Professional Corp. as its legal counsel. It has requested Ramtron to respond to its latest offer by June 19.

We believe the deal could make sense for Cypress for a number of reasons. First, Ramtron is a fabless company and would FIT very well into Cypress’ low capex manufacturing strategy. Being a fables company, Ramtron has the flexibility to move the manufacturing, assembly and testing of products to vendors that offer superior technology and services at competitive prices. It also frees up resources for R&D activity that would otherwise have been locked up in capital assets.

Second, Ramtron’s ferroelectric-RAM (F-RAM) would supplement Cypress’ Memory Products Division, which includes Asynchronous SRAMs, Synchronous SRAMs and nvSRAMs, and provide a longer-term roadmap for its non-volatile memory market. The Memory Products Division segment generated 44% of revenue in the first quarter and was down 9.1% sequentially due to inventory adjustments and lower demand from major SRAM wireless customers.

The impact of the deal on Cypress’ financials is unknown but will definitely bring synergies on the sales side.

Cypress is a semiconductor company offering high-performance, mixed signal, programmable solutions. Though the broader semiconductor industry was hit late last year by a slowdown in demand, Cypress had reported double-digit percentage sales growth bolstered by strong demand for its touchscreen controllers used in smartphones and tablet computers. Touch sales disappointed in the last quarter however, resulting in  a quarterly loss of 5 cents per share. Management expects a rebound in the current quarter.

Cypress operates in a highly competitive market. In the touch-screen market, the company competes with Atmel Corporation and Synaptics (SYNA - Free Report) .

Currently, Cypress has a Zacks #3 Rank, implying a short-term Hold recommendation.

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