Jeff Smith‘s Starboard Value has recently sent a letter to the CEO and President of Integrated Silicon Solution, Inc. (NASDAQ:ISSI), Scott D. Howarth, and the board of directors, expressing its concerns in connection with the recent acquisition offer from Cypress Semiconductor Corporation (NASDAQ:CY). We mentioned to our subscribers that this was likely the case after the fund increased its stake in the company after a merger announcement with a Chinese consortium for $19.25 a share. Then came an offer from Cypress Semiconductor last week to acquire ISSI for $19.75 a share. Now the story gets better as Starboard stated in the letter that it, together with Oliver Press Partners, another shareholder, are disappointed that a deal with Cypress was not pursued in the first place.
Starboard Value has been a shareholder of Integrated Silicon Solution, Inc. (NASDAQ:ISSI) since July 2014. According to the latest filing, the investor owns some 3.57 million shares, representing 11.2% of the outstanding stock, while together with Oliver Press, the group owns 11.5%. In the letter the investors expressed their disappointment that Cypress has not been included in the initial sales process, as the latter stated in its letter to the board, where the offer to buy Integrated Silicon Solution was presented.
Therefore, Starboard asked in the letter: “How could Oppenheimer run a full and fair process while failing to contact Cypress, whom any investor, advisor, or other participant in the semiconductor space would easily identify as one of the most likely strategic acquirers of ISSI in light of an obvious strategic fit and a history of significant and successful M&A?”
Although Oppenheimer could have some blame in the process, most of Starboard’s anger is directed at the board of directors.
“Unfortunately, the Board of Directors (the “Board”) failed to capitalize on this opportunity as part of the original sale process. This type of behavior is unacceptable and will not be tolerated.”
Among other things, Starboard also stated that a transaction between Integrated Silicon Solution, Inc. (NASDAQ:ISSI) and Cypress Semiconductor Corporation (NASDAQ:CY) is more favorable in comparison to the deal with the Chinese Consortium because it wouldn’t require the same restructuring or divestiture of the acquiree’s Taiwan operations, which is one of the biggest risks of the current deal.
Moreover, the investor expressed its disappointment that the break of the current deal with the Consortium will cost shareholders around $19 million in termination fees and urged the board not to revise the current merger agreement so that it involves higher fees and costs that would be against the shareholders’ interests and would force Cypress or another strategic buyer to raise its offer.
Starboard also demanded that the Board immediately form a special committee of independent directors to evaluate the proposal from Cypress and oversee any further negotiations with either Cypress Semiconductor Corporation (NASDAQ:CY) or the Consortium. The request comes as several directors have a conflict of interest in the deal with the Consortium “and may have different future operating roles depending on whether Integrated Silicon Solution, Inc. (NASDAQ:ISSI) is purchased by a strategic or financial buyer.”
The investors also reminded the board that they had nominated five independent directors to the Integrated Silicon Solutions’ board to be elected at the next annual meeting and will compel the board to hold the meeting as soon as possible if it is necessary to replace a majority of the board.
The full text of the letter is available below:
Among the funds we track, Starboard is the largest shareholder of Integrated Silicon Solution, Inc. (NASDAQ:ISSI), followed by Chuck Royce’s Royce & Associates, which owns 1.70 million shares, according to its latest 13F filing.