Cypress Semiconductor (NYSE:CY) found itself under pressure today from Chapman Capital, which holds around 1% of the company's stock. The well known activist hedge fund sent a letter to the company's board demanding that they consider split off their
Sun Power (NYSE:SPWR) stake and attempt to sell their core business via a leveraged buyout (LBO). Chapman said that based on prior estimates that the company obtained, along with their current cash position and Sun Power stake, the company's stock is worth $22 per share - a 35% premium over the current market price.
Since Chapman's stake was under 5%, he chose to issue this recommendation via a press release. The letter is rather lengthy (
read it here), but here's the synopsis:
"Chapman Capital L.L.C. today announced that it has notified the
Board of Directors of Cypress Semiconductor Corporation (NYSE: CY) of
its recommendation that Cypress reorganize via a split-off and
subsequent going-private LBO transaction. A letter dated today from
Robert L. Chapman, Jr., Managing Member of Chapman Capital, has been
sent to Cypress's full Board of Directors and is attached hereto. Mr. Chapman
commented, 'Like other significant owners of Cypress Semiconductor,
Chapman Capital has recommended that its Board of Directors re-engage
Credit Suisse to effect a corporate reorganization that separates Cypress's core semiconductor
operations from its controlling stake in SunPower Corporation.'
Regarding Chapman Capital's growing concerns regarding relatively
immaterial Cypress share ownership by its Board of Directors, Mr. Chapman stated further, 'Cypress's core semiconductor business, which Mr. Rodgers founded nearly 25 years ago, deserves a much higher valuation than what it was ascribed the day Mr. Rodgers took it public two decades ago. Mr. Rodgers
has stated publicly, 'you and I are going to make as much money as fast
as we can on this.' Cypress's Board of Directors, despite their
insignificant percentage ownership of Cypress, should expect that we
are going to hold Mr. Rodgers to this promise.'"
The letter presents solid arguments for a $22 per share price as well as evidence that the M&A market still exists for companies like CY. Combined, these factors make Cypress a stock definitely worth watching into 2007. The stock moved up over 3% today on the news.
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