Spansion gained $5.12, or more than 22%, to $27.97 in Tuesday morning trading. Meanwhile, Cypress shares rose $1.75, or 16.5%, to $12.16 per share.
Spansion CEO John Kispert said in a late Monday investor call that the tax-free merger would pair his company's strength in flash memory and programmable chips with Cypress's capabilities in static random access memory, or SRAM, chips and microcontrollers.
The companies' components are used in consumer and industrial applications from fertility monitors and magnetic card readers to controls for airbags and power windows in cars.
"It makes us very formidable in every part of the world, in every region of the world," Kispert said. "We have a complete set of technologies, the manufacturing capability, the process capability, the products and certainly the distribution and field organizations, field applications as well as sales organization, technical sales organizations to grow the company quickly."
For each share of Spansion, investors will receive 2.457 shares of Cypress. The companies presented the deal as a merger of equals that will not incur taxes. Each company's shareholders will have about 50% of the post-merger company, and each will designate four board members.
The post-merger company will take Cypress name. The combined companies would have $2 billion in revenue, and will maintain Cypress's dividend of 11 cents per share
Cypress CEO Thurman John Rodgers said that the deal requires regulatory approval in the U.S., China and Germany. He said the companies expect "no antitrust action, troubles of any kind," given the limited overlap in products.
"Cypress is number one in the SRAMs right now, and we sell almost no Flash memories. We sell a few, and they are different — functionally different from what Spansion sells," he said. "Spansion is number one in embedded Flash memories, and they don't sell SRAM."
Wedbush Securities Inc. analyst Betsy Van Hees deemed the merger a "great marriage," in a Tuesday research note. However, she suggested that Cypress's $135 million in projected savings and other deal benefits could "take a while to realize" given the time needed to complete the transaction and to integrate the businesses. Staff defections could cause growth to lag, she cautioned.
The parties expect to close the transaction in the second quarter of 2015.
Spansion's deal team included General Counsel Katy Motiey. Jefferies LLC and Morgan Stanley banker Michael Wyatt provided financial advice to Spansion. Fenwick & West LLP lawyers Gordon Davidson, David Healy and Scott Behar; and a Latham & Watkins LLP team led by Tad Freese, Anthony Klein and James Metz were counsel to the target.
Frank Quatrone, George Boutros, Jason Dillulo and Alan Bressers of Qatalyst Partners advised Cypress, which received counsel from Wilson Sonsini Goodrich & Rosati lawyers led by Larry Sonsini and Michael Ringler.