September 19, 2006 – The group of private investors that swooped in with an 11th hour bid for Freescale Semiconductor Inc. says it has backed out of the running, after the company accepted a $17.6 billion offer by a rival group, according to reports by Reuters and TheStreet — even though the chipmaker left the door open for other buyout offers.
The investor group consisting of Kohlberg Kravis Roberts, Silver Lake Partners, Apax Partners, and Bain Capital was reportedly a last-minute bidder for Freeescale, the former Motorola chipmaking arm now ranked as the world’s 10th-largest chipmaker with nearly $6 billion in revenues, focusing mainly on embedded chips for markets including automotive and communications. KKR and Silver Lake led the recent $10.6 billion buyout of Royal Philips Electronics’ former chip unit, leading to speculation that it might combine that business (since relaunched as a new company, NXP) with Freescale. Analysts speculated that a Freescale/NXP combination would make sense insofar as both companies already partner for semiconductor manufacturing in the Crolles2 alliance in Europe, along with STMicroelectronics.
But late last week, Freescale accepted the $17.6 billion cash offer from its initial suitor, a private equity consortium consisting of The Blackstone Group, The Carlyle Group, Permira Funds, and Texas Pacific Group. The deal, unanimously approved by the company’s board, calls for the consortium to purchase all Class A and Class B shares of Freescale for $40/share in cash, about a 36% premium over Freescale’s average closing share price of Sept. 8 — although that premium has been significantly reduced since the takeover rumors started swirling.
In revealing its agreement with the Blackstone-led group, Freescale noted a provision that allows it to solicit alternative proposals for 50 days, with Freescale paying an undisclosed breakup fee if another deal is accepted — suggesting that there was still hope for the KKR and Silver Lake group.
With new ownership, Freescale is likely to consolidate several wireless and data transport semiconductor companies, to develop complete system-level solutions for the communications, automotive, and wireless markets, according to American Technology Research analyst Doug Freedman. Revenues could swell to $8-$9 billion over the next 3-4 years — and maybe to $10-$12 billion if additional acquisitions are pursued — with a 18%-25% operating profit, and potential valuation of $30-$32 billion, nearly twice the current bidding price, he wrote, in a research note.