T.J. Rodgers came to Silicon Valley in the 1970s as a graduate student at Stanford University, when the last fruit orchards were still battling with young semiconductor companies for space. Rodgers eventually founded Cypress Semiconductor Corp. CY, -1.72% based on his own chip invention, and became an outspoken but respected leader in the industry, known for combative stances that have ranged from protecting U.S. technology to fighting with shareholder nuns on diversity.
But after more than three decades in charge of the company, Rodgers was asked to leave in 2016. He did so without a fight, but not for long; he has now turned activist investor, a role that as CEO he often disdained, in a vicious and public battle that involves mudslinging on both sides, a fraught shareholder vote and a chairman who became the American face of China’s ambitions to buy into the chip industry.
It is the chairman, Ray Bingham, who sits at the center of the current mess because of his involvement with a private-equity firm reportedly funded by the Chinese government, amid a yearslong debate about China’s ability to buy U.S. chip companies and knowledge. The private-equity firm’s purchase of another Silicon Valley chip company has led Rodgers to sue his former company, and win, and basically accuse Bingham of being a corporate spy with the potential to buy Cypress with his Chinese partners.
“He was providing confidential information on the status of Cypress’s M&A activities to an outside party that was seeking acquisition opportunities in the semiconductor industry and is a potential acquirer of Cypress itself,” Rodgers said in statement last month.
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Tuesday’s shareholder vote in Cypress’s hometown of San Jose, Calif., will be the culmination of months of such public communications between Rodgers and Cypress, which has not been shy in firing back at its former leader. Neither Cypress nor Rodgers would agree to speak beyond their public filings and statements, in which Cypress has described Rodgers as a founder “motivated by a personal vendetta,” “stuck in the past” and asserting conflict-of-interest claims that have no basis.
“Reputations have been tarnished, none have been burnished,” Cypress said in a recent proxy letter. “Cypress stockholders, management, employees and customers are caught in the middle.”
This, to say the least, is not normal.
“Typically a departing CEO will not want to take the reputational risk of engaging in a battle like this,” said Stephen Diamond, associate professor of law at Santa Clara University. “But the case with a passionate and dominant founder like T.J. is different. His reputation is tightly linked to Cypress, so he has an incentive to continue to engage. He is also a significant shareholder.”
Despite efforts by Cypress to tarnish the reputation of Rodgers, Cypress’s largest individual investor with a 2.7% stake, he has emerged the victor so far. Bingham stepped down from the board this week, and Rodgers still has plenty of admirers in the chip sector.
“He is an iconic figure in Silicon Valley, there is no one like him,” said Betsy Van Hees, an analyst with Loop Capital Markets. “When they made him they broke the mold…He has an important legacy.”
The fight first became public in late January, a few months after Lattice Semiconductor Corp. LSCC, -0.74% agreed to be acquired by Canyon Bridge Partners, an investment group with ties to the Chinese government, for $1.3 billion. At the time, Rodgers—who was no longer with the company—and Cypress’s new CEO and chief financial officer, according to legal documents, did not know that Bingham, Cypress’s chairman, was a “founding partner” of Canyon Bridge Partners until they read the press release announcing the deal.
Rodgers, frustrated by his attempts to communicate with Cypress’s board privately about what he saw as Bingham’s obvious conflict of interest, filed a lawsuit against the company in Delaware court seeking to prove his case. He testified that Cypress had been approached by Lattice in 2016 as a potential white knight to Canyon Bridge’s overture. Cypress passed on the deal, but the implication was clear to the judge who ruled in Rodgers’s favor: A firm run by Cypress’s chairman with Chinese money was seen as a competitor to Cypress in chip acquisitions.
Chinese investment in the U.S. chip business, an issue that has roiled the federal government for years and is still being fought, is a large and potentially fraught part of this fight. Rodgers has been outspoken against the efforts of the Chinese to buy U.S. chip companies and their strategic intellectual property, and led Cypress into a bidding war with Chinese investors for Integrated Silicon Solutions Inc., or ISSI, ultimately losing that battle.
Rodgers was asked to step aside as CEO 10 months after the failed bid for ISSI, and before the still-pending Lattice acquisition by Canyon, an important test case for U.S. willingness to allow China to buy U.S. chip companies and knowledge. The deal has been resubmitted for a U.S. review for the third time, according to Reuters, as U.S. lawmakers reportedly have concerns that the deal has national security implications and includes funds from the Chinese government.
Cypress’s view of the situation, though, avoids any talk of China, and focuses on its contention that Rodgers represents the old school of the semiconductor business, where only industry executives and engineers participated on boards and management. In the company’s estimation, it is time for both sides to move on from one another, but Rodgers is trying to use the proxy fight to get back into the company.
“This proxy contest is his first step in his planned ultimate return to Cypress,” the company wrote. “Many of you have told us you share our and management’s deep concern that even the specter of T.J.’s return is, and will remain, a significant disruptive force.”
Mike Demler, senior analyst at The Linley Group, isn’t so sure.
“I don’t think he wants to go back,” Demler said, adding that he believes Rodgers’s big passion right now is with his winery, Clos de la Tech in the Santa Cruz Mountains, which has pioneered the use of sensors and networks in growing grapes. “He just wants [Cypress] run the way it should be run.”
The chancellor in the Delaware suit also fought back against another Cypress contention, that it was a personal fight between Rodgers and the chairman who may have helped ensure his exit.
“I am not convinced that Rodgers’s actual purpose is to pursue a personal vendetta against Bingham,” Chancellor Andre Bouchard wrote in his order, in which he said he “generally found” Rodgers’s testimony “to be highly credible.”
Earlier this week, Bingham stepped down as executive chairman, “in order to remove the distraction to Cypress.” Eric Benhamou, once the longtime CEO of 3Com, also stepped down as lead independent director, although he remains on the board.
The question that shareholders must ponder Tuesday is whether they want Rodgers’s slate of two appointees, Camillo Martino and J. Daniel McCranie, both of whom have long industry experience, to join the Cypress board. Three influential shareholder-advisory firms—ISS, Glass Lewis and Egan-Jones—recommend Rodgers’s slate of directors and against re-electing Benhamou, who noted in an email after the Lattice deal that Bingham’s situation was “ripe for conflicts” of interest but did not act on the news that Bingham was a founding partner of Canyon.
Glass Lewis wrote in its recommendation to investors that Cypress’s board had a “muted response to the seemingly unambiguous violations of Cypress’ code of ethics and the increasingly substantive strategic proximity of Cypress and Canyon Bridge,” and that “investors would benefit considerably from fresh, independent oversight at the board level.”
Rodgers has come off as a blowhard egotist, a brilliant entrepreneur and an odd but fun mixture of both during his decades in Silicon Valley. Cypress is obviously ready to move on from him, but Rodgers is right to ensure that he doesn’t leave behind a company with leadership that is conflicted or complacent. Those elements have led to one of the messiest corporate divorces Silicon Valley has seen, and Tuesday’s meeting should be a dramatic final hearing.