Cypress Semiconductor Corp. (Nasdaq: CY) has launched a new hostile bid for memory semiconductor vendor Ramtron International Corp. (Nasdaq: RMTR), offering to pay a premium of 37 percent on the target company's latest stock closing price. It was the same premium Cypress offered for the company last year, but the valuation is lower this time due to recent declines in Ramtron's market value.
The latest bid comes two years after Cypress first broached the subject with the management of Ramtron and more than a year since the initial overtures were rejected by the target acquisition. In a public letter addressed to William Howard and Eric Balzer -- Ramtron's chairman of the board of directors and CEO, respectively -- Cypress charged the management with not working in the "best interest" of the stockholders.
Cypress is making an all-cash, "no-financing or due diligence conditions" offer for Ramtron, demonstrating its conviction that the acquisition is in its own interest and eagerness to quickly wrap up the transaction. The offer, Cypress said, "would deliver immediate, certain value to Ramtron's stockholders that is far superior to what we believe that you can reasonably expect to achieve as a standalone company."
The formal offer from Cypress, a supplier of high-performance, mixed-signal, and programmable semiconductor products, is for $2.48 per share, or approximately $85 million based on the number of Ramtron's shares outstanding.
It represents a 37 percent premium on the closing price of Ramtron's stock on Monday. This is the same premium Cypress offered last year, but Ramtron's shares have since declined sharply and at one point fell to a 52-week low of $1.65. They rallied after Cypress made its offer and have risen about 35 percent today on expectations the two companies will eventually conclude the deal.
Ramtron's management, despite the public drubbing and hostile nature of the Cypress offer, may have boxed itself into a corner and will probably have to agree to the sale. Investors seem to be in support of the deal, although I expect the management to try and seek better terms, which Cypress may be inclined to give, just so it can avoid further acrimonious and public discussions. Cypress aims to use the deal to boost flagging sales and secure, valued IP assets in the specialized semiconductor memory and microcontroller markets.
Cypress also seems ready to bypass Ramtron's management this time and has indicated it would take additional forceful steps to clinch the deal. T.J. Rodgers, president and CEO of Cypress, expounded on this in his letter to the Ramtron team:
We hope to work with you on a negotiated basis to complete this transaction successfully, and are prepared to deliver a draft merger agreement and begin discussions immediately. Although we would prefer to proceed through a negotiated agreement, we are fully committed to this transaction, and will take the steps necessary to complete it. We believe that a transaction between our two companies would be well received by your stockholders, and we are committed to providing them with an opportunity to express their views on our proposal.
The translation is simple: If Ramtron's management again rejects Cypress's offer, it will launch a hostile bid for control of the company's board of directors and take the bid directly to shareholders.
It was established when the first offer occurred in 2011 that this deal makes sense for Cypress... I do not know what you are talking about when you ask if they use ramtron memory in side their chips, but Cypress gets almost half its revenue from its memory products division and since Ramtron is a fables company buying the company is basically buying the technology, manufacturing contracts and R&D teams.
When it comes to this kind of acquisition, the first question that pops into my mind is how Ramtron product portfolio fits into Cypress roadmap? Has Cypress used Ramtron memory inside their chips before?
JBla203, Thanks for the added insight. You brought up a very important and slightly overlooked part of this discussion which is: why does Cypress want Ramtron so badly? It's obvious Cypress would like to acquire the company but why? The answer partly lies in what you pointed out. The proposed buyer sees value in the company's products and also sees the potential to leverage its own strength to increase sales. Cypress may also be looking for ways to energize its own performance.
While these are valid reasons, Ramtron's management would have to find a way to make that case without being seen as self-serving. That's a challenge. This may be an opportunistic move on Cypress' part but the production snafu you mentioned pushed Ramtron into this jambox. If they can hold off long enough to deliver sales growth and get rewarded with higher valuation by investors then it would be worth the refusal to sell.
Of course, there's another option for the companies. Cypress could simply sweeten its offer and make part of it conditional upon higher sales of Ramtron products. In that scenario, the seller would get some money upfront and additional payment would come once sales and profitability in Ramtron products increase. This serves the purpose of assuring Cypress' investors they aren't overpaying and gives Ramtron shareholders a sense of fair valuation.
I bought very low and will profit at this price, so thats not the issue I have with the takeover.
Since I have closely followed the stock, I understand it´s production dynamics fairly well and understand why the stock has lagged. Last year Ramtron established a production line at IBM corp. Initially, the line was suppose to start producing ferroelectric ram devices in 2010, but IBM did not start production until may 2011. With full capicity production delayed until Q3 2011. Being a small company, Ramtron´s bottom line reflected these problems. Ramtron had invested a great deal of time and money into the product line, handled the situation relatively well. Now that the product line is producing at capacity and profit margins and revenue have begun to increase, why would we want to sell this company when it should only grow. Cypress obviously sees potential, and I bet Q2 and 2012 numbers beat expectations. I hope they decline the offer because its potential is undervalued.
Your input is and has been very informative and interesting, I agree with most of what has been said, but by no means would I be realizing a loss. I say 4$ a share because it would accurately value the company´s potential. However, even for 4 dollars, I do not want to sell this stock (mentioned before). I believe revenues could reach 200 million a year within 3-5 years.
This hostile takeover involves a large company bullying a smaller one into getting what it wants for how much it wants to pay. So if they declined the offer the first time, I hope they would do it a second time.
Barb,That's where the disagreement lies here. Many of Ramtron's shareholders don't believe its prospects are "dim" but they don't also see it as burning brightly either. I believe the sticking point here is that Ramtron was trading at higher 2 to 3 years ago. Those who owned the shares then or bought at a high are not keen to sell at a loss. I believe they would be happy to sell at $4 but that would represent a very high premium that Cypress may not be able to justify.
I've seen a number of deals over the years where accepting an offer is considered the "right thing" to do for shareholders. These companies were not flailing or unprofitable, but in management's POV it was the responsible thing to do. If Ramtron's prospects are dim -- and there are arguments to the contrary -- shareholders can pressure management to sell.
Very interesting, I am curious to see how Ramtron responds. Thank you for your input and prompt response!
I believe ramtron should be patient because the next couple of quarters have the potential to be very strong for the company. We will find out by the 19th how the company feels!
JBla203, I can't say what Ramtron's management will resolve to do or whether shareholders will vote yes or no on the deal but there are certain pointers that are important to consider here. The first is the history of the transaction. Since Cypress first made the initial offer and Ramtron turned them down, the stock price hasn't moved up (instead it fell) and that tells me the company is still working through some issues that's keeping investors from pushing up its price.
The second is that Ramtron is showing some signs of sales growth again but this is not sufficiently strong enough to eliminate the cloud over the company. Unless it receives a major sales contract it will remain a small player in its market segment. Basically, Ramtron doesn't right now have the weight to be strongly competitive in its market.
Third, the valuation history supports the range of $3 to $4 that you expect but there's no bidding war going on here. The offer won't go up unless the two managements meet. Only Cypress seems to be interested right now in the company. I would suggest the management seek other potential alliances because Cypress is casting a shadow over the company. If Ramtron doesn't do this, investors will remain cool on the stock.
The increase in the stock price today tells me some investors believe the deal will go through. You'll notice that the price hasn't shot through the offer price, which can mean shareholders don't believe Cypress will raise its offer. This may or may not be the case but I am sure Ramtron's management is reviewing the offer and should respond soon.
Finally, I said Ramtron's management boxed themselves into a corner because the moves they allegedly made after Cypress made the first offer is making them look like they are more intent on protecting their own position rather than realizing higher value for shareholders. Cypress also made this charge in its public letter. This is a case of letting the opponent tell your story. Ramtron must make its case -- for or against the deal -- and make the case effectively too.
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