Cypress Semiconductor (CY) wants to spin off a huge block of SunPower (SPWR) stock, a move that could create a major overhang on SPWR’s stock price (as CY shareholders dump them).
One hitch, however: When CY went to the IRS to get approval for this plan, the IRS said CY must distribute its 42 million Class B shares without converting them to the publicly traded Class A shares prior to distribution. This will create two classes of stock…and a mess for those who have been shorting SPWR and going long CY.
AmTech’s John Hardy breaks down what this means for SPWR shareholders and especially to those who have exposure to both stocks:
Following the distribution now expected to occur in the October timeframe, there will be a dual listing for SunPower (SPWRA, SPWRB).
SPWRB will maintain an 8 to 1 voting advantage over SPWRA; therefore, SPWRB should trade at a premium to SPWRA. It is important to remember SPWRA will be the same asset as SPWR; however, the distributed shares (SPWRB) are now worth more in our eyes than prior to the IRS decision.
However, investors that have been shorting shares of SPWR against their ownership of CY in order to better expose themselves to CY’s core semiconductor business will be unable to cover their shorts through CY’s distribution of SPWRB shares as we understand it. This is likely to result in volatility pre and post distribution and potential outperformance of SPWRA shares as investors sell distributions of SPWRB shares in order to purchase SPWRA to cover short positions.
AmTech reiterates BUY on SunPower (SPWR), target $164.
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