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Cypress Semiconductor Corporation Sends Letter to Board of Directors of Integrated Silicon Solution, Inc. | Cypress Semiconductor

Cypress Semiconductor Corporation Sends Letter to Board of Directors of Integrated Silicon Solution, Inc.

Last Updated: June 02, 2015
SAN JOSE, Calif., June 2, 2015 -- Cypress Semiconductor Corp. (NASDAQ: CY) today announced that it sent the following letter to the Board of Directors of Integrated Silicon Solution, Inc.
June 2, 2015 
John M. Cobb
Chief Financial Officer and Vice President
Finance and Administration
Integrated Silicon Solution, Inc.
1623 Buckeye Drive
Milpitas, California 95035
Mr. Cobb,
On behalf of Cypress Semiconductor Corporation (“Cypress”), I am writing to respond to certain assertions in the June 1, 2015 press release issued by Integrated Silicon Solution, Inc. (“ISSI”) regarding our offer to acquire all of the outstanding common stock of ISSI for $20.25 per share in cash.  For the reasons described below, we strongly disagree that our offer poses the regulatory or financing risks you claim. Furthermore, on a comparative basis, we have a high degree of conviction that Cypress’s proposal has far less timing and closing risk than the Agreement and Plan of Merger dated as of March 12, 2015 between ISSI and Uphill Investment Co. (as amended, the “Uphill Merger Agreement”).
The concerns articulated in the June 1 press release about antitrust risk and overlap between Cypress and ISSI in what you characterize as the “SRAM market” are misleading.  We appreciate that there will be antitrust review processes that may address competitive interaction in some SRAM applications. However, we believe that the antitrust agency reviewers will see this to be a fundamentally procompetitive transaction within an exceptionally dynamic industry populated by many far larger players and customers.
The SRAM overlap you highlight primarily concerns non-embedded SRAM for legacy sales, that is, for the installed base of sockets, which amounts to less than 2% of the sales of the combined companies.  The overwhelming trend in the SRAM industry is a transition from standalone, non-embedded, SRAM chips to embedded SRAM solutions where neither Cypress nor ISSI is a significant supplier.  In the past 10 years standalone SRAM sales have declined by approximately 85%.  Notwithstanding this severe decline, there still are numerous other existing non-embedded SRAM suppliers able to meet these installed base needs of sophisticated and powerful customers that have significant control over their supply chain and component partners. The predominant competition for new applications at the design stage includes a myriad of powerful suppliers of embedded SRAM and of other competing memory technologies.
The far more important overriding reality is that the proposed merger between Cypress and ISSI would combine a range of complementary product lines and businesses, enabling the merged enterprise to offer a more complete product and solution portfolio, in line with other full service global chip suppliers. Customers throughout industries now served by those global leaders will benefit from the ability of the merged firm to meet more of their current needs and to become a strong force in the innovation and development of next-generation technologies and solutions for their future needs. In this light, the merger will be seen -- by customers and reviewing authorities alike -- as fundamentally procompetitive. This same procompetitive transaction logic is a primary driver of the accelerating consolidation underway in the semiconductor market.  More specialized companies are combining to offer complete and compelling product solutions to large, global customers interested in sourcing component solutions from strong, full-service suppliers.
Nonetheless, in a further effort to obviate any antitrust concern, and confirm that Cypress is not seeking to limit competition for embedded or standalone SRAM suppliers, we are now clarifying the licensing commitment set forth in our side letter of last Friday. Specifically, we are incorporating an open-ended, customer-driven, multiple-license commitment into the proposed merger agreement, and we are also making clear that our reasonable, best-efforts obligation to address any agency antitrust concern includes, but is not limited to, that licensing commitment.
ISSI Regulatory Concerns
Any antitrust concerns you raise, which we have gone to great lengths to put to rest, pale in comparison to the far more daunting CFIUS and Taiwan regulatory issues in the Uphill Merger Agreement.  The purchasers in the Uphill Merger Agreement are foreign entities.  CFIUS (a U.S. government inter-agency committee authorized to review transactions that could result in control of a U.S. business by a foreign person) has previously stated that there are national security concerns when considering foreign control of semiconductor manufacturers.  Moreover, because key U.S. industrial, communications and aerospace and defense customers rely on ISSI’s semiconductor products for their sockets, foreign-control of ISSI also raises significant U.S. infrastructure concerns.  The Uphill Merger Agreement and its dollar limitation on divestiture does not meaningfully address this risk.  In addition, we note, that CFIUS can be a lengthy and complicated process.  For example, in another current acquisition attempt, regulatory agencies have delayed, now by more than 10 months, an acquisition of a U.S. chip maker by a foreign investment group affiliated with Uphill Investment Co.
In addition, ISSI has already acknowledged the significant Taiwan regulatory risk in the Uphill Merger Agreement.  Key ISSI assets and a majority of its personnel are located in Taiwan, and ISSI acknowledges the prospect of a complicated divestiture process subject to Taiwan governmental review. 
Clearly, the regulatory and timing uncertainties presented in the Uphill Merger Agreement are significantly greater than any conceivable issues in a transaction between our two companies.  
We deleted from the draft Agreement and Plan of Merger that you delivered to us (the “Cypress Merger Agreement”) your suggested language that Cypress be required to deliver an executed commitment letter from its lender in connection with entering into the Cypress Merger Agreement. As we explained to you previously, including a requirement that a purchaser provide the seller with an executed commitment letter is more typical for an LBO or a merger transaction involving a buyer with a poor credit rating or a buyer from certain foreign countries, including the People’s Republic of China; however, it is not typical in cases where the purchaser in a merger transaction is a large, well-established and financially sound U.S. publicly-traded company with the financial means and wherewithal to secure any required financing.  
Nevertheless, in order to address your continued assertions regarding financing risk, we are willing to share with you a draft financing commitment letter from Barclays Bank PLC (the “Financing Commitment”) evidencing that Cypress will have the requisite financing, under very competitive terms, to complete the transaction.  We will execute the Financing Commitment simultaneously with execution of the Cypress Merger Agreement.
Therefore, our proposal fully addresses any and all financing concerns.
Assuming full cooperation from you, Cypress expects to complete its due diligence by Friday, June 5, 2015 and to execute definitive agreements, including the Cypress Merger Agreement, by Sunday June 7, 2015.  It is in the best interest of your stockholders, and ours as well, to finalize a transaction as soon as possible.
Notwithstanding anything to the contrary contained herein, nothing in this letter constitutes a binding obligation of Cypress to proceed with or consummate a transaction. Any transaction between Cypress and ISSI will be subject to approval by our board of directors and the execution by Cypress of the Cypress Merger Agreement and other acceptable definitive agreements.
As we said two weeks ago, we would have preferred to participate in your sale process, but were surprisingly not contacted.  As such, we are simultaneously releasing this letter to the public as we believe that it is in the best interest of ISSI and its stockholders to have full information regarding our proposal.
We look forward to working with you toward completion of a successful transaction.  If you have any questions regarding our proposal, please contact our bankers at Greenhill & Co. 
Thad Trent
Chief Financial Officer
Forward-Looking Statements
This press release contains certain “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts included or incorporated herein may constitute forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding the Company’s offer to acquire ISSI, the Company’s financing of the proposed transaction, regulatory matters, and that the Company’s acquisition proposal constitutes a superior proposal under the terms of the Consortium Merger Agreement. Statements including words such as “believes,” “expects,” “will,” “look forward” or similar expressions are forward-looking statements.  Because these statements reflect the Company’s current views, expectations and beliefs concerning future events, these forward-looking statements involve risks and uncertainties that may affect the Company’s business or future financial results. These risks include, among others, risks associated with the economy; conditions in the overall semiconductor market; acceptance and demand for the Company’s products; technological and development risks; legal and regulatory matters and other competitive factors. Risks and uncertainties related to the proposed acquisition of ISSI include, among others, the ultimate outcome of any possible transaction between the Company and ISSI, including the possibilities that the Company will not pursue a transaction with ISSI and that ISSI will reject a transaction with the Company; the risk that if ISSI’s board of directors agrees to negotiate a definitive acquisition agreement with the Company and the Company and ISSI enter into a definitive agreement with respect to the proposed transaction, that ISSI’s stockholders do not approve the proposed transaction; potential adverse reactions or changes to business relationships resulting from the announcement or completion of the proposed transaction; uncertainties as to the timing of the proposed transaction; competitive responses to the proposed transaction; the risk that regulatory or other approvals required for the proposed transaction are not obtained or are obtained subject to conditions that are not anticipated; the risk that other conditions to the closing of the proposed transaction are not satisfied; costs and difficulties related to the closing of the proposed transaction and the integration of ISSI’s businesses and operations with Cypress’s businesses and operations; the inability to obtain or delays in obtaining anticipated cost savings and synergies from the proposed transaction; unexpected costs, charges or expenses resulting from the proposed transaction; litigation relating to the proposed transaction; the inability to retain key personnel, customers and suppliers; and any changes in general economic and/or industry specific conditions. Additional factors that could cause future results or events to differ from those the Company expects are those risks discussed under Item 1A., “Risk Factors,” in Cypress’s Annual Report on Form 10-K for the fiscal year ended December 28, 2014, Cypress’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2015, and other reports filed by Cypress with the Securities and Exchange Commission. Please read the “Risk Factors” and other cautionary statements contained in these filings. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, the occurrence of certain events or otherwise. As a result of these risks and others, actual results could vary significantly from those anticipated in this press release, and Cypress’ financial condition and results of operations could be materially adversely affected.
About Cypress
Cypress (NASDAQ: CY) delivers high-performance, high-quality solutions at the heart of today's most advanced embedded systems, from automotive, industrial and networking platforms to highly interactive consumer and mobile devices. With a broad, differentiated product portfolio that includes NOR flash memories, F-RAM™ and SRAM, Traveo™ microcontrollers, the industry's only PSoC® programmable system-on-chip solutions, analog and PMIC Power Management ICs, CapSense® capacitive touch-sensing controllers, and Wireless BLE Bluetooth® Low-Energy and USB connectivity solutions, Cypress is committed to providing its customers worldwide with consistent innovation, best-in-class support and exceptional system value. To learn more, go to
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