Shares of Cypress Semiconductor (CY) today fell 15 cents, or 1.5%, to close at $10.03, despite an upbeat note from Pacific Crest’s John Vinh, whoe wrote that the company’s planned acquisition of the Internet of Things business of Broadcom (AVGO), announced back in late April, is “highly complementary.” 

The deal should be neutral to Cypress earnings next year, writes Vinh, who has an Overweight rating on Cypress stock, and an $11 price target, based on the math of the debt Cypress is issuing to buy the unit:

Cypress announced plans to offer $250 million in a convertible debt offering in addition to $450 million in term loan to finance the acquisition of Broadcom’s IoT business. Cypress noted that the debt financing will also be used to pay down $107 million in revolver financing. Assuming a further pay- down of debt of $200 million, $7 million-$8 million in cost synergies, offset by ~18 million share dilution from the convertible, we estimate the IoT business should be EPS break-even in 2017.

As previously announced by Cypress, longtime CEO T.J. Rodgers is retiring from his position. Vinh muses on whether that might mean some take-out of Cypress by another chip vendor: “With the departure of CEO TJ Rodgers, and the execution of a change-in-control agreement, we believe there is increased probability of an acquisition. However, given its 50% exposure to memory, we believe the probability of an acquisition remains low.”

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