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