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

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.

Related Articles
  1. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  2. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  3. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  4. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  5. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  6. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  7. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  8. Stock Analysis

    Top 3 Stocks for the Coming Holiday Season

    If you want to buck the bear market trend by going long on consumer stocks, these three might be your best bets.
  9. Investing News

    Could a Rate Hike Send Stocks Higher?

    A rate hike would certainly alter the investment scene, but would it be for the better or worse?
  10. Investing News

    Corporate Bonds or Stocks: Which is Better Now?

    With market volatility high, you may think it is time to run for corporate bonds instead of stocks. Before you do take a deeper look into which is better.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!