Hedge Fund Calls for Cypress, SunPower Split
By Colleen Taylor -- EDN, December 29, 2006
In a vitriolic letter to Cypress Semiconductor's board of directors, activist hedge fund Chapman Capital LLC has accused the company of underperforming and called for the launch of a large-scale "corporate reorganization" that would involve splitting from SunPower Corp., the uber-successful solar technology company in which Cypress has held a controlling stake since 2002.
The letter, signed by Chapman Capital's managing member Robert Chapman, Jr., the hedge fund claimed that since it owns 1.5 million common shares in Cypress, its financial interest the company now exceeds CEO Thurman J. (T.J.) Rodgers' own, "despite his having founded Cypress and received millions of free stock option grants over the past two and one half decades." Chapman cited what he called the "needlessly protracted undervaluation placed by the market on Cypress's core semiconductor operations" as fueling the hedge fund's call for a corporate reorganization that would separate Cypress' core semiconductor operations from its controlling stake in SunPower.
Calling for the sale of SunPower, Chapman said that Rodgers "may have fallen in love with SunPower as a source not only of revenue growth but reputation redemption following a history of false starts." According to Chapman, this love affair could lead the company to hold on to the solar subsidiary despite what Chapman forecasted as an impending downturn in its profitability.
For its part, Cypress has indeed been reviewing its investment in SunPower for some time now. Cypress began seriously mulling over an IPO of SunPower last year. In June, SunPower priced the public offering of 7 million shares of its class A common stock at $29.50 per share in an effort to raise some $206.5 million for Cypress. However, the buyout deal was officially nixed in October, and SunPower remains a majority-owned subsidiary of Cypress.
Reps at Cypress could not be immediately reached for comment on Chapman's letter.
