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Equity firms acquire Freescale for $17.6B

Posted: 19 Sep 2006 ?? ?Print Version ?Bookmark and Share

Keywords:Freescale? Mark LaPedus?

Freescale Semiconductor Inc. announced late last week that it has agreed to be acquired by a private equity consortium in a transaction worth $17.6 billion. The consortium is led by The Blackstone Group, and includes The Carlyle Group, Permira Funds and Texas Pacific Group.

Under the terms of the agreement, the consortium will acquire all of the outstanding Class A and Class B shares of Freescale for $40 per share in cash. The board of directors of the company has unanimously approved the agreement and resolved to recommend that Freescale's stockholders adopt the deal.

The chipmaker first acknowledged it was in discussions with third parties regarding a possible transaction on Sept. 11. There were apparently two competing groups bidding for Freescale, which spun-off from Motorola Inc. only two year ago.

As reported, a consortium of investment firms was close to finalizing a deal to buy the company for about $16 billion, according to a report published earlier this week. According to the report, the consortium in talks to acquire Freescale included Texas Pacific Group, Blackstone Group and Permira, with the possibility that the Carlyle Group and Bain Capital could also join the group.

The report added that a second consortium comprising Kohlberg Kravis Roberts & Co. (KKR) and Silver Lake Partners had also submitted an offer for Freescale, but that the alternative bid looked unlikely to succeed because it may have been too little and too late.

Many had speculated that the company would end up in the hands of KKR, which would merge portions of Freescale with portions of NXP Semiconductor, the former Philips semiconductor unit bought by a KKR-led group last month.

However, the KKR bid apparently fell short, ending speculation that Freescale's wireless and automotive chip units would be spun out, along with NXP's RF and automotive entertainment IC units, into separate companies.

Another possible option
According to some observers, however, Freescale still has another possible option.

A Freescale press release noted that the merger agreement contains a provision under which Freescale "may solicit alternative proposals from third parties during the next 50 calendar days. In addition, Freescale may, at any time, subject to the terms of the merger agreement, respond to unsolicited proposals. If the company accepts a superior proposal, a break-up fee would be payable by the company."

The company's transition to a privately held company was seen as unusual, because over the two years since the company's IPO in 2004, the management team had wrung much of the fat out of the company, reducing staff and consolidated manufacturing into eight fabs. Normally, private equity firms swoop in to acquire under-performing companies, reduce costs, and then either engineer a merger or sell off portions of the company.

Also, Freescale's size, posting $5.8 billion revenue last year, is larger than typical private equity deals. Now, the deal leaves open the question of how much longer Freescale CEO Michel Mayer will remain at the helm.

- Mark LaPedus
EE Times

David Lammers contributed to this story

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