June 3, 2019 / 6:09 PM / in 5 months

Infineon's Cypress deal may land advisers $95 million fee bonanza

LONDON (Reuters) - Banks including Morgan Stanley and JP Morgan are set for a $95 million windfall, their most lucrative payday so far this year for a deal involving a European company, after Infineon’s swoop on Cypress Semiconductor.

FILE PHOTO: The logo of semiconductor manufacturer Infineon is seen at its Austrian headquarters in Villach, Austria, June 3, 2018. REUTERS/Lisi Niesner

The German company’s $10 billion deal with Silicon Valley-based Cypress will boost Infineon’s presence in next-generation automobiles and Internet technologies, creating an automotive leader with a 13% market share.

But while investors have expressed concern over the hefty price tag, the banks that engineered the deal are celebrating a much-needed pay boost after M&A activity in Europe plunged 67 percent in the first quarter of 2019.

A pick-up in multi-billion dollar deals in Europe, which began in May with Nestle’s $10 billion sale of its skin health unit to buyout fund EQT, will mean a much-needed fee boost for some banks, who are typically paid on a success basis.

Morgan Stanley, which acted as exclusive adviser to Cypress, is expected to earn fees of between $45 million and $55 million for its role, Freeman Consulting estimates.

On the other side of the negotiating table, Freeman estimates Credit Suisse, JP Morgan and Bank of America, could share fees of between $30 million and $40 million for advising Infineon and providing committed financing.

GOLDMAN ON TOP

But there will be no reward for Germany’s Deutsche Bank, which did not secure any role in the Infineon transaction despite previous work for the German firm.

Germany’s biggest bank advised Europe’s biggest chip-maker in 2010 on the sale of its wireless business to Intel, but has been left empty-handed on recent deals, including its $3 billion purchase of California-based International Rectifier in 2014.

Investment banks working on global mergers and acquisitions(M&A) have seen fees drop by 15% so far this year to $11 billion compared to the same period in 2018, Refinitiv data shows.

Fees related to all investment banking activity, including equity and debt capital market transactions, are down 17% so far this year to $37.5 billion, Refinitiv data shows.

Goldman Sachs has so far topped the global M&A league tables, with a 38.5% market share followed by JP Morgan and Morgan Stanley, after advising Fiat Chrysler on a $35 billion merger with France’s Renault.

Combined with Nestle’s 10.2 billion Swiss franc skin health deal, the two transactions could earn banks $65 million in fees, Freeman says, with up to $50 million likely to go to the lead advisers on the Nestle disposal.

Despite its size, Fiat Chrysler’s proposed tie up with Renault is only worth up to $15 million in overall fees, Freeman said, pointing to the French government playing a bigger role than the banks in determining its fate.

Reporting by Pamela Barbaglia; Editing by Alexander Smith

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