Cypress Semiconductor Spinoff Confuses Investors

By Eric Fox | October 02, 2008 AAA

Cypress Semiconductor (NYSE:CY) completed the spinoff of its SunPower Corp (Nasdaq:SPWR) shares on September 30, causing confusion in the market as many quoting services showed the shares down 70%.

Cypress Semiconductor is a manufacturer of semiconductors for use in consumer and commercial product applications, including handsets, set top boxes, and networking and telecommunications equipment. SunPower designs and manufactures solar panels and cells for both residential and commercial applications. (Read more on spinoffs in our Mergers and Acquisitions Tutorial.)

Another Victim of the Credit Crunch?
Cypress Semiconductor closed on Sept 29, 2008, at $19.52, and opened the next morning at $5.52. causing many quote providers to show the shares down 70%. While some investors may have thought that the credit crunch had "crunched" the shares of Cypress Semiconductor, it was just the market marking down the shares to reflect the spinoff.

The mechanics of the spin off worked like this: SunPower had two classes of stock outstanding, Class A and Class B. Only the Class A shares traded publicly under the symbol SPWR. All the Class B shares were owned by Cypress Semiconductor. After trading closed on September 29, 2008, Cypress Semiconductor spun off the 42,033,287 shares of SunPower Class B to holders of Cypress Semiconductor at a rate of 0.27426764 shares for every one owned of Cypress. So, while technically the shares of Cypress Semiconductor did drop 70%, shareholders were compensated with shares of SunPower Class B. (To learn more, read The Two Sides Of Dual-Class Shares.)

On September 30, 2008, SunPower changed the trading symbol for its Class A shares to Nasdaq:SPWRA, and listed the newly issued shares of Class B under the symbol Nasdaq:SPWRB. The Class B shares also have eight votes each, compared to one vote for the Class A.

Unlocking Value
The reason why Cypress Semiconductor spun off the shares of SunPower was to unlock value in its shares. Some analysts and investors felt that the since both the solar and semiconductor operations were valued together, that the market undervalued the shares. The theory is that if they traded separately then the market would understand them better and be able to value them appropriately.

So how have investors fared after this was completed? Pretty well so far as seen below:

- Close
Sept. 29

Close
Sept. 30

Cypress Semiconductor $19.52 $5.22
SunPower Class B - $18.94
Total Value $19.52 $24.16

Investors should note that September 30 was the day the market rebounded strongly after the record drop of 777 points, so that may have had the effect of boosting the shares.

Other companies have conducted spinoffs recently. In August, IAC/InterActiveCorp (Nasdaq:IACI), spun off four companies: Ticketmaster (Nasdaq:TKTM), The Home Shopping Network (Nasdaq:HSNI), Interval Leisure Group (Nasdaq:IILG) and LendingTree (Nasdaq:TREE).

Bottom Line
The spinoff of SunPower Class B shares by Cypress Semiconductor caused some investors to think that Cypress lost 70% of its value overnight, when in fact, a shareholder was ahead by nearly $5 per share.

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