SIMTEK Corporation (NDAQ: SMTK) shares continued their rise today after Cypress Semiconductor (NYSE: CY) announced that it would explore a potential acquisition of the company. Cypress offered few details other than noting that discussions could result in a transaction such as a merger, acquisition or stock, or purchase of a division or business. SIMTEK shares jumped over 60% on the news, despite the fact that there has been no set offer or assurances that a deal will even be made in this difficult credit environment. So, what should you do?

SIMTEK shares are trading well off their 52-week highs of around $6.71 after the company cut its revenue and profit forecasts in late October. Shares are now trading at a five year low and Cypress already owns a 6% stake in the company with warrants that could boost its interest to 19.3% if exercised. Cypress also stands to save money on royalty payments to SIMTEK related to their co-developed 4-megabit chip scheduled for delivery next quarter. Combined, these factors could make for a relatively cheap acquisition in terms of cash outlay at this point.

SIMTEK chief executive Harold Blomquist said his company had no warning that Cypress was interested in an acquisition but was not surprised given their very healthy working relationship. Many analysts are not all that surprised either given the fact that the two companies are joint development partners and suggest that the company could sell for between $3.15 and $3.50 per share. Given the health of the credit market and the fact that this is a strategic buyer, it is unlikely that any other bidders will emerge.

In the end, this is great news for SIMTEK shareholders who saw their shares hit new five year lows just days ago. Cypress’ acquisition would make a lot of sense from a business standpoint and would come at a very cheap price while SIMTEK shareholders would be rewarded with a fair value for their stock. Combined, these factors make SMTK worth watching!

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